Weekly Wrap

Market Update

The last 5 trading days has seen the emergence of a technical trade set-up for the XJO, based on candlestick movements. Below we can see that the XJO had a large fall at the start of the week, and each day since then, the index has remained within that range. These set-ups are important to technical analysis, as they are a strong indicator of market direction in the next few weeks or months.

Basically, the index needs to close above the high at 7368, or below the low at 7216, to determine which way it is headed. As the XJO recently reached an all-time high at 7403 on the 16th of June. The pattern below may be alerting us to a correction ahead.

For this to be confirmed, the XJO needs to close below 7216.

Alternatively, if there are further gains ahead for the XJO, the high at 7368 needs to be broken.

Market Snapshot

Volatility Index (VIX)

ASX Sectors

ASX Indicies

Dragonfly Biosciences

Who are Dragonfly?

Jeremy Grantham has been in the fund management business for a long time. He has made a name for himself by calling out market highs in 2000 and the GFC of 2008. This time he has made special mention of the current fad for investing in meme stocks. These stocks are the favourites of a group of traders that inhabit a website called Reddit’s WallStreetBets channel. The website has over 10 million users who are big fans of Crypto currencies. The users of WallStreetBets also mobilised some short seller to take large losses when they pushed up the price of GameStop shares a few months ago.

Grantham views the social-media-driven meme-stock moves as concerning and indicative of bubbles percolating in financial markets that will ultimately need to be contended with. Of course, the hardest thing to do is to time exactly when the market will face this ‘day of reckoning’, but Grantham notes that:

“The data, like today, is always clear, just uncommercial and inconvenient for the investment industry and often psychologically impossible to see for many individuals,” Grantham told Bloomberg.

Below is a list of the most popular meme stocks, with AMC and GameStop rising the most so far this year. There is a major disconnect for AMC with the companies bonds trading around 80% of face value. This means that the professional market have a low view of the company being able to repay its debts, compared to the Reddit crowd.

Market’s can get disconnected on occasions and meme trading is simply another Tulip mania. AMC and GameStop are not expected to record a profit anytime soon and both companies have Sell ratings from the research houses that cover them.