Australia dollar hit as Nasdaq bubble bursts

See the latest Australian dollar analysis here:

Macro Afternoon

DXY was firm last night but hardly strong:

The Australian dollar was hit but not very hard, either:

Same for gold:

And other commodities:

Miners copped it, though:

And EM stocks:

Junk was fine. This is where I’d want see more damage to signal a bigger bust:

Bonds rallied:

Nasdaq went “pop”:

So, is this the end of the madness for stocks and risk in the great fakeflation? Lord knows. All we can observe is that the crash up has driven an extreme market position that is ripe for unwinding. There’s been a massive surge in bullish options trading which has driven market-makers to buy stocks to hedge:

In turn, volatility buys have risen with stocks:

Which is classic blow-off top structure:

As breadth collapsed:

It’s not just tech:

The only chart that matters is back in vogue:

And a reminder from yesterday, if the unwind in the Nasdaq is swift then expect it to outpace any rotation (a deflationary versus inflationary bust):

Then the Australian dollar will get plastered again.

David Llewellyn-Smith
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  1. Uh-Oh, We’re In Trouble,
    Something’s Come Along And It’s Burst Our Bubble
    (Yeah, Yeah!) Uh-Oh, We’re In Trouble,
    Gotta Get Home Quick March On The Double!

    …on second thoughts, let’s have one more strawberry daiquiri before this party’s over.

  2. Strikes me this was fairly technical in nature. I’m guessing the market rebounds as dip buyers emerge, and then we get a more serious pull back.

    Either way, we know we can sell Aussie with a tight stop to the topside now…

  3. “DXY was firm last night but hardly strong:”

    And there’s the canary in the coal-mine. A fall in stocks of this magnitude is normally accompanied by much more strength in the USD i.e. risk assets are trash and cash is king. Right now there are so many dollars sloshing around that ‘king dollar’ can barely get out of bed. Just another warning that real assets are winding up for more strength down the road. Both Republitards and Democraps have promised trillions more stimulus and by next year even Joe Idiot will wake to the fact that he needs some ‘pet rock’ action, exposure to the agriculture industry, other commodities etc.

    • Decent comments, thanks.

      It will be very interesting to see what DXY does.

      I’m not sure if I’m just maturing as a reluctant trader, or just deluded, but I’m not overly concerned by this correction…yet…

      Further, I expected gold to get punished more than it did – and, it finished above $1930, which has some technical significance…?

      • There is some resistance in the $1,900-$1,930 range but that’s not to say that gold may not break lower. Either way, I’m not that worried. Gold is either going to consolidate for a period around the current range (1-2 months) before the next leg higher or it could possibly have a quick puke lower before the next rally. Everyone knows the dollar gusher will continue for some time and a Dem victory especially so — free money all round.

        I wanted to sell some of my miners a bit earlier (in August) but missed the top. I’m concerned that if the overall correction is too shallow I’ll be forced to buy back in at levels higher than I sold at so am sitting tight for now. The next leg up will be interesting as this first leg hasn’t really drawn in the mainstream investment community and the media didn’t get onto the gold theme either. When both the above happen, the next leg up could be quite significant, but we’ll see.

          • Perhaps it’s because I don’t read the MSM much these days. Certainly, on the finance sections on the ABC and 4BC (2gb whatever) it barely got a mention while it was rallying. I’m sort of thinking Bitcoin-style coverage when it was rallying to $19,000. We’ve definitely seen none of that. Housewives getting rich etc.

  4. Gold also down – seems like the USD is still king

    Tech bust probably precipitated by this news fro the NYT?
    “The Justice Department plans to bring an antitrust case against Google as soon as this month”

  5. So any thoughts as to what triggered this? Yesterday it was all go, today, with no warning, the S&P is down 3.5%.

    • Egregious over-valuation? No trigger required.

      The pros use technical analysis for timing entries and exits, which is usually why the non-pros end up holding the bag.

  6. I had an awful day trading. I’ve been learning, and thought I was getting the hang of it. Picked the silver short, but set the stops too close. Woke up, got a bit on a long, figured it was bouncing, (it wasn’t) went long, then hit my fear index max at the exact bottom tick before it bounced most of the way back before falling again. Seemed like I’d pick everything exactly wrong.

    Now I’m back to square 1. NFI what’s going on.

    Argh. It’s ‘play money’ but It’s still real.

    • The90kwbeastMEMBER

      Day trading for 90%+ of players is a great way to lose money, and is basically gambling. Good luck.

  7. If it gets 2 solid down days the 3rd will gap down hard, probably limit down. Its going to get very bumpy. I’m calling top.

  8. alwaysanonMEMBER

    The way that my mates and coworkers are talking about tech stocks now feels VERY like how they were all talking about crypto in December 2017 at the peak of that. I actually heard the other day that just trading the popular stuff the Robinhooders are (as reflected in momentum style is a “licence to print money” and people are going very hard into this with a FOMO around how much of the party they’ve already missed. It is very much a speculative frenzy and nobody is talking about it as being super risky…

    I lost ~$10k on the crypto thing and so have been a bit too cautious here too (learning, perhaps wrongly, that chasing the speculative frenzy up at the end is dumb) after getting out of equities earlier this year before the RONA dip.

    • Rorke's DriftMEMBER

      Thanks AA good insight. Im an experienced trader and been frustrated small tech stocks I had been steadily building long term positions in crashed in march and then started spiking to ridiculous levels (without me set) as retail money floodd in. Its been obvious stimulus money washing through. Hadnt realised the retail social networks are firing too.
      The answer is its too late based on stocks im watching. Just stay cashed up so you can buy when the blood hits the floor again.