NQ1!, Inefficient Market is Begging for CorrectionThis past week the price made above the weekly expected move defined by the options market. This is known as a gamma squeeze. The excessive buying of Calls forces the market maker to buy underlying securities that results in higher prices. This is inefficient market situation. Looking 3 year back at the options market I noticed a handful number of weeks when similar result happened. This week is definitely an outlier from statistics perspective. Does it mean it won't continue higher next week? No, just need to be aware of a potential correction to put the market in order. The market maker does not want to loose money on a runaway market. A correction may happen in the overnight session when the cash market is closed. This is the easiest way to put things in order.
One needs to remember that machines, aka Algos, are in control most of the time. They calculate the levels and keep going higher and higher until humans, their masters, intervene and reset them. What we observe nowadays is no human intervention whatsoever. The humans see no risk and remain dormant.
The retail crowd is getting even more upset seeing the market keep on making new highs every day despite all the talks and facts about the slowing economy, inflation and etc. But for the machines the value of numbers is meaningless. They take previous period close and range and apply the coefficients to project a new period.
That's the reality of today's market. As a matter of fact, it makes the trading even easier. The mental gymnastic related to market prediction is simplified to projecting the levels similar to Algos and watch a reaction around them to get an idea whether that level is respected or not. If a reaction is observed then it is worth trying to trade. Do not try to trade based on your subjective opinion what market should do. It's a recipe for blowing your account.
What to expect the next week. The new week, the new month the new levels for the Algos to project. The options market defined range 15575-16150. 16K is a notable milestone and it may provide a reaction. For now, watch how the previous week/month high is supporting the market. A failure to continue, especially if a swift rejection happens may suggests a reversal. The initial reaction may not be that deep but a second one may do the trick. The old adage "Second mouse gets the cheese" works very well in trading.
Good luck.
10/30/2021
