After climbing 2.60% yesterday, the Standard & Poor’s 500 fell 2.37% today.
Same story with the Dow Jones Industrial Average–up 2.83% yesterday, but down 1.34% today. And the NASDAQ Composite–up 2.23% yesterday and down 3.08% today. And the small-cap Russell 2000–up 2.41% yesterday and down 2.66% today.
Some of this reversal had to do with a reassessment of the likely consequences of core inflation climbing to a 6.6% annual rate in September. Hard to see how that number doesn’t mean the Federal Reserve will raise interest rates higher and for longer.
But I think that thinking about fundamentals in the financial markets is only part of the picture. Yesterday’s huge gains were the result of computer trading kicking in at technical levels and buying of shares by options traders closing out Put positions that had moved to a profit. Today’s losses look to me to be a result of traders putting on those short positions again after yesterday’s move. For instance, all of Elon Musk’s tweets aside, Tesla was an attractive short sell after yesterday’s gain of 2.06%. The shares were down 7.55% today. Same with Alcoa (AA), up 2.56% on October 13 and down 6.19% today. Or EVgo (EVGO), up 4.65% yesterday and down 5.25% today. Or Nvidia (NVDA), up 4.00% yesterday and down 6.13% today.
Those short trades today must have looked especially appealing because so many stocks are in a fundamental downtrend. Market volatility aside, do you really want to be on the long side of Tesla or Nvidia over the next few weeks or months as the Twitter chaos and the slowdown in the PC market play out?
