This is rather well explained here:
https://wolfstreet.com/2021/01/27/as...-late-trading/
In the afternoon, I noticed the 20DMF starting do display a strong accumulation while the Cumulative Tick was showing continued selling. I dug down and noticed that this was the result of the retail investors' raids on short sellers.
Indeed, the 20DMF is an equal weight sector based indicator: I average the Money Flow measured on about 100 sectors. For each sector, the MF of the sector is calculated as a money weighted basis. This means that a stock gets more weight in that sector if more money comes in. This is the way for me to detect early moves into sectors. The original idea was to follow fund rotation between sectors: when a fund wants to invest into a specific sector, such as for example oil producers, the fund will probably invest in several stocks and not just one so that the risk is spread. However, when there is good news on one stock, money comes flowing in and you want to be informed, because the good news is probably going to spread to other stocks in the same sector.
However, when we get a short sellers raid, a big gush of money flows into only one stock in the sector and doesn't spread around, but greatly affects the total Money Flow for that sector.
We can see this below on the 'Telecom Others' sector, where BB was raided, which resulted in a change of the Sector MF.
The same thing occurred for IRBT on the appliances sector.
The basic result is that my sector based market indicators cannot be relied upon as they do not reflect the present market situation.
It is much better to look at the Cumulative Tick that shows a strong general selling move for the small caps, while
The market weighted average TEV tells us that large stocks were comparatively not under heavy selling.
I have also been closely watching the XRT retail ETF. This ETF has a very small capitalisation of about 708 M$ and includes 84 stocks on an equal weight base. GME is one of these stocks. We can see the consequences for XRT of GME's ballistic move.
GME has now increased its weight on XRT from 1.5% to about 5.3% or even higher. The rebalancing of XRT occurs on March 19, 2021. This means that until that date, XRT will move together with GME, but without similar volatility. On the other hand, a few XRT stocks that are also heavily shorted might attract raiders (BLNK, MGNI, SFIX.) Hence, XRT might still move higher. For value investors, XRT displays a negative P/E of about -40. But who really cares about old fashioned earnings in this market?
The XRT move is of course not sustainable. It could be interesting to buy puts, as XRT will come down, but the ETF could still be manipulated higher by simply raiding other heavily shorted stocks.
We can see below that the IWM ETF, which is also rather small at a capitalisation of 3B$, pulled back yesterday. The reason is simple: it holds 2000 stocks and hence will not easily fall a victim of one or two large moves.
Finally, as can be seen below, the NQ8 sector attracted selling yesterday, with the rest of the market.
Conclusions:
Funds have been attacked by retail raiders. The Fed will not come to the rescue. The Sec will only step in if the broad market is menaced, which is not the case. There are circuit breakers on individual stocks, which might be enough to calm these raiders.
Because of the stimulus money, since March 2020 the small caps have outperformed the large caps. However, I believe that in a market shakeout, the small caps should greatly underperform, which is not the case for now, probably due to raiders targeting a few small caps.
However, the very negative Cumulative Tick tells us that there is real selling in the small caps.
The IWM protective puts that I bought have started working well.
I'd need to see a real panic move on the small caps before closing my protection.
Will funds collaborate to crash the markets and burn the raiders?
