This Dangerous Market has a Long Way to Go

If there’s one picture that illustrates why the bear market is not yet over, it’s this…

Shares of Zhong Yang Financial Group (TOP) started the day Thursday near $6. They finished at $20. They closed Friday at $108 per share after trading above $240.

This is a Chinese stock trading on a U.S. exchange. And, it’s the perfect illustration of the current gambling culture in the market.

This is not normal. It’s anything but efficient.

It’s dangerous.

It’s also why I believe this bear market has a long way to go.

You see, bear markets don’t end amidst a flurry of gambling activity. They end when the gamblers have gone bust, when they swear off ever trading stocks again.

As you can see from the action in stocks like TOP – and in the popularity of zero-day-to-expiration option speculation – we are a long way from that happening.

Last Thursday’s action in the broad stock market reminded me a lot of the meme stock activity from 2021.

The market opened higher, and the computers just pressed the shorts all day long. It was a day of buy program after buy program after buy program.

Intraday, the S&P 500 didn’t pull back more than two points for the entire session – until the final hour when it fell from 4136 to 4132 and then rallied again.

This persistent buying action forces the short sellers to cover at unfavorable prices, and it forces new buyers to chase prices higher or face the possibility of being left behind.

Back in 2021, it was the YOLO (You Only Live Once) traders on Reddit that created persistent buying in stocks like GME, AMC, and BBBY. They forced short sellers to cover positions at unfavorable prices.

And they forced reluctant buyers to chase the stocks higher or risk being left behind.

Last week, it was the institutional computers pulling the strings.

I’m not entirely sure what it means for the markets. I suspect, though, that just as the YOLO traders’ actions in 2021 were unhealthy for the markets, the programmed trading on Thursday (and on Tuesday’s decline – which was also a constant flurry of computer sell programs) is not a good thing.

Combine that with the increasing casino-like atmosphere among market participants, and you have conditions that are usually seen closer to a top in the stock market than to a bottom.

So it seems to me that this bear market still has a long way to go.

Best regards and good trading,

Jeff Clark

Are you ready for the gambling crowd to leave the market?

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