Retail Traders and Reddit rattle Wall Street – market rotations will reward those that are ready

January 29, 2021

– The big news has been GameStop’s incredible rally from price levels below $10 to an incredibly high price peak near $483. The ability of retail traders to pull small accounts and actively target heavily shorted stocks, pushing short-sellers into a “short squeeze” has everyone talking about it. Many people are calling for investigations on both sides saying the system is broken and this should never be allowed to happen.

Gamestop Rally Shakes Up Wall Street

Thanks to the ability of social media and smartphones, people all over the world can now share ideas, content, and excitement about a stock symbol or opportunity in the market in an instant. Unlike in the 1980s, when individuals had to get on the phone and call their closest circle of friends, social media and technology allow one person to post a message that can instantly be seen by thousands or millions of people. News channels are more than willing to jump on the story and make it even bigger. We live in interesting times where information flows faster and freer than ever before. The Gamestop Daily chart below shows what can happen when this happens.

The take away from all of this is if you were lucky enough to already be invested in some of these targeted symbols – good work. Ride it out and grab the profits while they are there. If you were not that lucky, please be very cautious of trying to jump into these trends very late in the cycle. Risks are very high and these types of “flash moves” typically don’t last long. Remember that skilled traders always take profits when they can.

SPY Reset Event/Deep Rotation & Recovery

The end result of all of this is that larger institutional funds suddenly realized they needed to re-evaluate their risk exposure, and particularly their short trade risk exposure. This means a very large number of these firms are suddenly looking at what a 2x or 3x Standard Deviation range rotation would do to their capital and how they have planned (or more likely NOT planned) for this type of event.

This type of repositioning in the markets typically sets up a series of new opportunities for traders. Broad market sectors tend to correct or rotate in a manner which “resets” trends. Regardless of how the markets recover or trend after this reset event, traders will always find opportunities in rotating sectors and symbols by always trading the Best Asset Now.

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The following chart of the SPY 60-minute shows how quickly the SPY fell yesterday with nearly 3x the normal volatility range, but then initiated a strong recovery less than 24 hours later. This is what we call a “reset event”. Depending on how the market trends after this event completes, we may see new moderately long-term trends set up over the next 7 to 15+ days.

SPY Rebounds Off 20 Period MA – May Setup New Rally Attempt

One key factor to consider when looking at the SPY Daily chart below is that it appears to have rebounded off the 20-period Moving Average. While it has done this many times before, this type of “rollover/reset” has shown to prompt fairly strong rally attempts in the past. If the markets continue their upward trending, we may begin to see broad market sector/symbols bullish triggers set up in the near future.

These “reset events” create big opportunities. Traders need to wait for the right setups/trends to confirm the best trade triggers over the next few weeks.

I publish these articles and research posts to teach our readers the importance of using efficient trading strategies to grow their wealth, achieve financial goals and have more free time. 2021 is going to be full of great trading opportunities for those who know how to take advantage of sector rotations, relative strength, and momentum. Quite literally, hundreds of these setups and trades will be generated over the next 3 to 6 months for those subscribers using the BAN strategy. Sign up now and I will teach you how to create and trade your own hotlist in my FREE (less than) one-hour tutorial on the Best Asset Now.

For those that don’t have the time to research and create their own BAN Hotlist, you can get my Hotlist, daily technical analysis and research, as well as my trade alerts, all delivered to your inbox every day with the BAN Trader Pro newsletter service. Don’t let these great trading and investment opportunities come to pass without you taking your piece of the pie!

Happy Trading!

Chris Vermeulen
Chief Market Strategist

TheTechnicalTraders.com