Why was Wall Street its craziest cycle in years

The sudden turn in stocks prompted Wall Street to look for something – anything – to explain how another sweltering inflation number translated into the bulls’ best day in a week.

Among the answers: Increasingly strong positioning including well-stocked hedges, moment-to-moment charts watchers, and many less horrible earnings reports. He threw some short covering, and the result was a bottom-to-peak rally in S&P 500 futures that approached 5 percent at the widest, the largest since the early days of the pandemic.

The Fed’s two-day meeting will determine the next turn for the stock market.attributed to him:AP

Expect the unexpected to become the only catchphrase in the market when cross currents flow in from every direction, including the Federal Reserve, which is determined to curb inflation while keeping a watchful eye on financial stability. Thursday’s turnaround came after the S&P 500 erased half of its rally from the 2020 pandemic low, a blow to wealth that has yet to show any sign of curbing inflation, and may one day play a role in achieving that goal.

“It’s the nature of the beast these days that sometimes you get these big swings during the day. We can all speculate about what might be behind that,” said Liz Ann Saunders, senior investment analyst at Charles Schwab & Company. The market, there is more money moving based on quantitative algorithms and strategies. At any time, you can have catalysts that can cause a 180 in the middle of the day.”

With the direction of stocks being described as almost impossible, professional traders have been busy limiting their exposure to sudden moves. Institutions bought more than $10 billion ($15.9 billion) of individual stocks last week, a record for that group and close to any group of traders ever, according to Sundial Capital Research.

There was circumstantial evidence that those bets paid off in the immediate aftermath of the government’s consumer price report, which showed higher-than-expected inflation. While stock futures sold out, the Cboe Volatility Index, a measure of market anxiety related to options in the S&P 500, actually declined, which could be a sign of profit-taking by hedged traders. As these positions were monetized, this prompted market makers to back off the short positions they had placed to maintain their neutral position in the market.

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It’s a combination of shorting/selling, it’s a very good hedging event. It’s trading like the event is passing, sell your hedges, which contributes to a higher market,” said Danny Kirsch, head of options at Piper Sandler & Co.

Elsewhere, a handful of technical signals were on the side of the bulls, among them the 50 percent retracement in the 22-month rally that broke out in the S&P 500 in March 2020. When the index fell below the 3,517 level, some market watchers took it as a sign that the sell-off was underway. That lasted nine months had crossed the line.

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Originally published at Melbourne News Vine