Who would you trust with your money?
Updated
Spoiler alert: More evidence against NDQ in this idea!
US Companies are organized in clusters, some of them are DJI, SPX, RUT, NDQ etc.
Some of them are more trustworthy than others. And by that I mean which of these sets one can depend on.
DJI is indeed a dependable group of companies, the so called Blue Chips. Composed of the 30 largest US Companies.
These companies aren't playing around, they have deep foundations that can withstand the worst of crises.
The opposite of foundation is hollow ground. In finance, one hollow ground could be derivatives.
More info about the possible repercussions of derivatives in my last idea:
Derivatives are financial weapons of mass destruction.
-Warren Buffett
I have talked about how you should not blindly trust the price of the main indices.
And as we know, the effect of derivatives is embedded in the price we see every day in our Watchlists. Equity price is a victim of derivatives.
You know, these derivatives which by default have no foundation and are susceptible to a possible crash like the .com bubble. Let's hope a ".options" crash doesn't come for derivatives. And if it does, let's hope that the "weapons of mass destruction" was a figure of speech!
So how big is their effect? BIS warned about the hidden debt, the "everything bubble" we have created and we are comfortably sitting inside it. Buffett has warned about derivatives.
The only thing I can analyze is these hyperbolic charts, namely SQQQ (short QQQ) and it's cousins DOG (short DJI) and SPXU (short SPX). To remotely begin to make sense of their nature, we have to reduce their exponent. Dividing a chart by an arbitrary amount doesn't "flatten" it to a lower growth scale. We will have to raise SQQQ to 0.2 for example to bring it down to meaningful and comparable levels.
I tried normalizing these 3 beasts, using the following methodology:
For the entire history of SQQQ we calculate the SQQQ^-1 chart, and measure how much it grew in this period. As seen above, SQQQ^-1 increased by 17000x. To make it comparable to QQQ, we progressively increase the exponent so as to make QQQ and SQQQ growths identical. If this explanation didn't make sense, the following chart may clear things out.
So we come up with the following "balanced" derivative charts.
SPX // SPXU^-0.216
DJI // DOG^-0.62
QQQ // SQQQ^-0.244
WIth the // symbol I mean that these charts move in parallel.
So what can we infer from them? More speculation maybe, more questions than answers... But still, there seems to be some important difference between them.
I will divide these two charts to make some sense. When the chart increases, the "real" part of the index is increasing. When the chart decreases, the "derivative" part of the index is increasing. So in a sense, the chart increases when indices grow fairly, without cheating using derivatives.
First SPX
Next DJI
Finally QQQ (NDQ)
Painful...
Is this derivative bubble the only reason NDQ is still afloat in this immense QT environment?
In an attempt to keep business going and as money gets scarce, Big Tech is pushing prices higher using an immense amount of derivatives.
Are these derivatives going to be the doom of NDQ?
All of this may be speculative and some charts may not be financially true. But sometimes, price simply discounts everything.
Tread lightly, for this is hallowed ground.
-Father Grigori
US Companies are organized in clusters, some of them are DJI, SPX, RUT, NDQ etc.
Some of them are more trustworthy than others. And by that I mean which of these sets one can depend on.
DJI is indeed a dependable group of companies, the so called Blue Chips. Composed of the 30 largest US Companies.
These companies aren't playing around, they have deep foundations that can withstand the worst of crises.
The opposite of foundation is hollow ground. In finance, one hollow ground could be derivatives.
More info about the possible repercussions of derivatives in my last idea:
Derivatives are financial weapons of mass destruction.
-Warren Buffett
I have talked about how you should not blindly trust the price of the main indices.
And as we know, the effect of derivatives is embedded in the price we see every day in our Watchlists. Equity price is a victim of derivatives.
You know, these derivatives which by default have no foundation and are susceptible to a possible crash like the .com bubble. Let's hope a ".options" crash doesn't come for derivatives. And if it does, let's hope that the "weapons of mass destruction" was a figure of speech!
So how big is their effect? BIS warned about the hidden debt, the "everything bubble" we have created and we are comfortably sitting inside it. Buffett has warned about derivatives.
The only thing I can analyze is these hyperbolic charts, namely SQQQ (short QQQ) and it's cousins DOG (short DJI) and SPXU (short SPX). To remotely begin to make sense of their nature, we have to reduce their exponent. Dividing a chart by an arbitrary amount doesn't "flatten" it to a lower growth scale. We will have to raise SQQQ to 0.2 for example to bring it down to meaningful and comparable levels.
I tried normalizing these 3 beasts, using the following methodology:
For the entire history of SQQQ we calculate the SQQQ^-1 chart, and measure how much it grew in this period. As seen above, SQQQ^-1 increased by 17000x. To make it comparable to QQQ, we progressively increase the exponent so as to make QQQ and SQQQ growths identical. If this explanation didn't make sense, the following chart may clear things out.
So we come up with the following "balanced" derivative charts.
SPX // SPXU^-0.216
DJI // DOG^-0.62
QQQ // SQQQ^-0.244
WIth the // symbol I mean that these charts move in parallel.
So what can we infer from them? More speculation maybe, more questions than answers... But still, there seems to be some important difference between them.
I will divide these two charts to make some sense. When the chart increases, the "real" part of the index is increasing. When the chart decreases, the "derivative" part of the index is increasing. So in a sense, the chart increases when indices grow fairly, without cheating using derivatives.
First SPX
Next DJI
Finally QQQ (NDQ)
Painful...
Is this derivative bubble the only reason NDQ is still afloat in this immense QT environment?
In an attempt to keep business going and as money gets scarce, Big Tech is pushing prices higher using an immense amount of derivatives.
Are these derivatives going to be the doom of NDQ?
All of this may be speculative and some charts may not be financially true. But sometimes, price simply discounts everything.
Tread lightly, for this is hallowed ground.
-Father Grigori
Note
Normalizing SQQQ on the pre-2020 period:We get another comparison.
This chart may represent "how much more derivatives are in QQQ right now?"
It is funny you know, when I realize that serious charts like these are not popular...
Note
Note
I'm still waiting for someone to help me explain the "QQQ Derivative Density" I posted, is Nasdaq getting immensely filled with derivatives??? Are stocks replaced with weapons of mass destruction???Note
One note about the Big Tech Bubble:- As money is created from thin air (borrowing cheap and lending expensive), the difference is invested in stock market, bubbling it up. This process is relatively slow and steady. This is only possible in periods of QE (1980-2020)
- In periods of progressively higher yields, this method of thin-air money creation is impossible. Derivatives are the only option. As money gets scarce, there is high incentive of withdrawing that money from the stock market. To prevent equity downside, the removed money are replaced with cheap derivatives, bubbling up the stock market. This process is fast and unstable. This is occuring in the post 2020 world (QT).
- Curiously, the derivative bubble may have just begun. Who knows how high or how low equities might get. Perhaps this simplistic idea might make sense after all.
The crash happens when nobody expects it to. Perhaps when equities go actually parabolic. Parabolic equities is a byproduct of extreme inflation.
Since equities usually surpass the inflation rate, there is high incentive of keeping the equities growing fast in an inflationary environment. High equity prices doesn't necessarily mean wealth-creating. No matter how severe the NDQ bubble might get, the growth of Bitcoin looks like it will surpass it.
Note
NDQ is still at the tip of the iceberg. Unfortunately, the winter has passed...Price rejected off of the 1.272 retracement. A possible target is drawn (circle).
Note
Trustworthy DJI?Real DJI Value = DJI*Yields
RSI is showing probable indications of short-term upside. This growth should not last long.
Note
Ah just a simple chart: DJI / M2SL
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