There are a couple of problems that will occur in any market that falls into the traps that ours today have...
But, knowing there is a problem... and knowing when and how it will be resolved in a correction, two different things.
The obvious problem is in... "which changed the facade of market risk dynamics overnight"... I'll note the use of the word "facade" is apropos... Then, a record number of index puts had been purchased by institutional investors who were hedging further downside en masse... indicates greater awareness of risk in the behavior "en masse"... not validating any "elimination" of that risk ? Hedged... at what cost ?
While "in effect putting an end to the liquidation panic"... means a more orderly flow from here... but does little to alter the longer term direction of that flow... once we're beyond the "relief" (rally) following in the wake of having (mostly ?) dodged that first volley of bullets last week... Having gotten our body armor on now... doesn't mean the war is over ?
It has "the market" saying... "whew, hedged that"... so, therefore... "all the risk is gone, now" ? So the performance of the market is not a function of the performance of the companies... of the positive business environment... of positive changes in real things... but is only about... "the risk has been hedged" ? LOL!!!
What it means is... the drivers of the market have become overly self referential... the market goes up... because the participants want it to... and the structure of the drivers has been altered to allow them to have their way... no matter what the risks are... for as long as the money does flow...
And, FWIW, I won't quibble that the market can have a very good week with strong inflows coming. But, the money flows are lagging indicators... a momentum thing... They're not sufficient, in themselves, to sustain the drivers of the market in the long term... as those flows are purely reactive.
Looking out ahead of the trade... for more than a week ? I expect what you will continue to see is a market rotation... the "dumb money" flows will continue coming in... and the "smart money" flows will accelerate out.
I know a lot of people have been predicting... new highs coming. And, those same people were shocked by the moves the market made last week... and changed their views.
Matching your view to the timeline that matters in your choices is useful. And, charts are often a better tool for visualizing the patterns in change in behavior that is occurring... than the short term view of the week ahead. On the monthly chart a very bad week, or a very good week in the market... will be followed by another week... that might matter more ? What this chart says to me is... "April".
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