How long will the long fall last?

Attention should be paid to the meetings of the US FRS, Bank of England and Bank of Russia during the next week. Their decisions and statements may significantly influence the Forex market. Investors will be expecting the industrial production statistics from China and also the EIA report in the raw material markets. Also, the retail sales statistics from the United States and Great Britain will be published next week.

September confirms its reputation of being the worst month for the US stock market. Bears took the lead practically from the first days and sell-outs of the technology sector stocks sometimes look like bull surrenders.

Thus, Apple fell by 8% a day early in September, which is absolutely non-typical for this ‘heavyweight’. The other recent growth leaders fell at similar rates. Traders call this phenomenon a ‘long fall’ (opposite to a short squeeze), which means a massive closure of long margin positions, which provokes closure of other longs.

As it often happens, there were no obvious reasons for the fall. It’s true that the labour market recovers slowly and the economic risks are still big. But it was quite clear a month ago.

So, what’s next? On the one hand, the majority of top stocks are still strongly overbought, on the other hand, the FRS continues to ‘print’ money, which is a very bullish factor. Nobody knows what would happen in reality. We can only assume that the bulls will make at least one surge after the retracement in order to test previous highs.

Meanwhile, the Nasdaq index futures broke the uptrend, falling during the previous week at the March rates.

The Elon Musk capital in 2020 is, probably, one of the most volatile things in the Universe. Mass media were full of headlines during the past months about how his wealth skyrocketed to yet another high following the Tesla stock (TSLA) value.

The September retracement started the countdown. Tesla lost one third of its capitalization just in a couple of days and its owner lost USD 16 virtual billion just in one day – on September 8.

A famous specialist on corporate finance David Trainer points to the fact that the price is unreasonably high even if Tesla implements all its Napoleonic plans. ‘This is a huge and one of the biggest houses of cards of all times and it is about to crash’, – Trainer said. However, the speculative seesaw may continue to swing.

Meanwhile, one of the main ‘initiators’ of the grand US technology sector stock rally came to the surface. It turned out to be a big Japanese financial holding SoftBank, which acquired big positions in stocks with a high beta (such as Amazon, Google and Netflix) and call options for billions of dollars. Besides, the bank wasn’t too scrupulous in using borrowed funds.

Such a strategy not only supported the powerful growth of these stocks in the summer non-liquid market but also resulted in a huge volume leap in options on some stocks, which, for the first time ever, constituted more than 100% in the underlying asset.