There is a confidence game taking place on Wall Street right now.
Most everyone is presently convinced that lower interest rates are generally a bullish signal for equities, growth equities especially.
Irrespective of how those lower interest rates are derived or whether they are subject to illiquid conditions while piling on record amounts of short interest prior to the run in bonds makes little difference. Lower interest rates mean that it's safe to buy growth equities.
We saw an example of this in real time today, as the Nasdaq started the day going significantly lower, but the appeal of lower rates on the day caused a stampede into tech names by the close, reversing the earlier losses.
At the same time, investors are beginning to believe that tech has become a flight to safety trade, as rates have cratered and the reversals, almost daily this week, have been very convincing in nature.
The fact that the markets have only recently started playing this confidence game, with this week having the added bonus of lower interest rates to drive home the point that tech is generally safe is a precursor to chaos in the sector.
This is the manipulation of psychology in the markets at work in real time. The attempt by the market to create paths of least resistance before the statistically significant moves take place.
The only way to do this is to convince investors that a certain reality is concrete.
They can't lose or have a very small chance of loss.
Risk is seemingly minimal.
Investors piled into growth today, being manipulated into thinking they are now safe because rates have recently tanked, while technology continues to demonstrate relative strength on a consistent basis.
The market is going out of its way to drive this point home as demonstrated by the last 3 days of trading in the Nasdaq 100.
Similar to mid-February before the Nasdaq began to descend in earnest, what we have seen in mid-March are 3 days in a row of closes at or near the daily highs, with the opening tick being near the lows.
This is the confidence game of the markets at work.
This the market attempting to convince investors it is safe to step back into the water at the worst possible time.
Markets don't go out of their way to put together patterns like this without intention.
Guaranteed that this intention doesn't involve handing bags of cash to the average investor who believes that growth HAS to go up when rates drop while believing in the growth safety trade mirage that has emerged in recent days.
Another trap is being set before the Nasdaq legs lower.
We added to our short positions this morning.
Buyer beware.
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