I’m not going to make any kind of argument about what is going to happen in the future. I’m just trying to help people who might be new to stocks process the events as they unfold in the markets with some context. Also I’m going to explain something a lot of you already know first (market structure).
Okay so I’m going to briefly explain market structure and why it’s important to think about when looking at news and the markets.
The idea behind market structure is that a part of why the stock market moves the way it does is because people working with huge amounts of money (smart money) can’t simply buy and sell stocks the same way we (retail traders) can.
Imagine if some big firm wanted to buy 10 million shares of a stock at a good price (pretend the stock is at a good cheap-ish price now).If they were to hit the open market with a 10M share buy order, the stock price would shoot into the stratosphere because there simply aren’t enough sellers at the current price. So how does smart money fill big buy orders? In little chunks.
They accumulate positions little by little, and they need a constant inflow of new sellers (that’s us retail traders and investors) who are ready to sell our shares for cheap to the smart money. When smart money is looking to go long, where do you think they get those shares from?
How does this relate to everything unfolding? Sure there is bad news and that bad news warrants that many companies should have their share prices marked down accordingly. Sure there might be some good reasons to sell certain positions of yours, especially if you think they’re not worth more than their current price anymore due to the SVB situation. But be mindful that at a certain point when the stocks are discounted enough, smart money is going to want to step in to go long.
When smart money steps in to start accumulating shares of whatever companies they’re now interested in at these new low prices, they will need ENOURMOUS selling pressure (people scared and willing to get rid of their shares at any low price). So at a certain point, and it’s already probably happening, the news articles will be 30% facts and 70% fearful speculating in order to scare retail into providing inventory to smart money. They need prices to stay low while they buy huge amounts of stocks. That can only happen with sustained fear.
Then when let’s say 50% of the fear-mongering speculative articles end up being false alarms, the markets shoot up in relief… after all the big players have already entered at the bottom 🙂
So just be mindful as you read articles and watch prices go down. At a certain point the line between fears, facts, and fantasies get blurred and that’s probably a sign to consider.
So yeah remember to try and sift out fact from prediction, and then make your own judgments! Consider both sides and make your own predictions. Even if you don’t act on them, it’s good to learn more about the markets! This is a good opportunity to gain insights into how things work.
Good luck out there everybody!
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