Last week posed a massive problem for momentum traders as the 10 year rates started to really get going. Despite Monday’s bump, what the market confronted last Friday was the first drop into a prior price box. QQQ had formed a $340/$320 price box in January to February but fell below that price box last week in a week that was bouncing up and down along that price box as the market struggled to hold it. If you are not a YOLO trader, the rule would be to add to your exposure when a new and higher price box formed and, most important, cut your exposure when price fell back to a prior lower price box (which happened last week). Monday would have been a head fake because anyone anticipating buying at the bottom of the price box would have been sorely disappointed as price fell below the price box on Tuesday and subsequent days (in the QQQ).
The remainder of the week was no better as each drop confirmed the new lower price box was now the current price box and the $340/$320 price box was history.
In mid-morning trade, at the lowest point, QQQ breached the second price box and briefly fell below $300, entering the $300/$200 price box. It closed up as the entire market rallied off the mid-morning low but this breach of the second price box is not encouraging, to say the least.
If rates resume their climb next week, or in a few weeks (as 2% is expected on the 10 year by year end), QQQ could easily fall into the $300/$200 price box. In other words, QQQ below $300 could threaten $200 in short order.
This week’s charts provide a startling number of price box breaches or near breaches, a negative tone to say the least for risk assets. A bull market should only see higher price boxes. A drop into a lower price box should be a clear signal to reduce long exposure. So, when Monday was the best day in months that is paradoxically not a good sign for risk assets as some of the biggest up days occur in bear markets.
The poster child for the current bubble is, of course, ARKK and its TSLA fuelled run up. The fact that ARKK is negative for the year, breached three price boxes and closed, despite the day’s bounce off the morning lows by the market, in the third price box does not bode well. Predictions are always hazardous but not only is the price action discouraging, along with the ultra high short interest, but the LTCM/Neil Woodford school of risk management for this current largest inflow fund manager ($50B under management) underscores the risk in this market. Not only is there potential for redemptions to overwhelm liquidity, and with so many oversized exposures to illiquid and tiny issues where ARKK is the whale, but the SEC short swing rule 16 mentioned by the FT.com seems to be in play which would aggravate “frictions” in any attempt to generate liquidity. The only thing missing is r/Wallstreetbets touting ARKK.
With the $160/$140 and $140/$120 price boxes breached ARKK is currently precariously sitting at $117 in the $120/$100 price box. Given recent moves the $100/$80 price box is not far off (indeed today’s lows went more than halfway toward the next price box).
TSLA is not helping in this regard as its $900/$600 price box was breached, opening up the $600/350 price box. After $350 the next price box would be $350/$200. Fortunately the SPY does not care despite TSLA’s inclusion (brilliant move S&P 500 committee) which means that the Fed does not care (but if ARKK does a LTCM does this imply that it is, finally, not systematic for once?).
For this week at least all I see are price boxes:
bouncing around lower parallel; $105 price box still holding but trend is still down. 
touched price box 
briefly broke through price box 
$220 looks close 
$25 price box touched 
$350/$300, $300/$262 price box lost? $262/$245 price box nearly breached. At a critical level here too. 
$45/$25 price box fell and $20/$15 price box touched 
$35 price box breached 
$120 price box nearly hit 
loss of $320 price box brings $300 into play 
breach of lower parallel and $250 price box is a worry 
$140 price box hit twice 
$245 price box somewhat distant for now as price is stalled 
$30/$15 price box fell 
$240 price box is close 
touched $230 price box but still above lower parallel 
$470 is looking rather close 
breach of $40 price box after breaching lower parallel at the start of the month 
breach of $500 price box 
lower price box in play 
touched $200 price box 
sitting at the price box of $34 
$75/$35 price box breached in the morning 
$100 price box breached in the morning 
$180 looks rather close 
briefly breached lower parallel and $340/$300 price box; breach of either could accelerate the downtrend 
$130/$40 price box? Huge range. 
$1500/$1300 price box fell, $1300/$1100 price box breached but bounced back from morning lows 
holding lower parallel and has a way to go before $360 or $320 price box concerns 
broken down from $900/$600 price box; $600/$350 is current price box 
nearly hit $50 price box 
lower parallel still holding but if it breaks, look out for $200 price box 
$600/$350 price box breached
Felix qui nihil debet 
[…] feedback loop as selling begets more selling. I bring this up because a previous blog entry (The two price box problem – Felix qui nihil debet (wordpress.com)) mentioned the extreme risk in ARKK and its Neil Woodford style of risk management with its large […]
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