Do you like puzzles?
Personally, I hate them, so scratch that.
How about mysteries? Everyone likes a mystery, right?
Come to think of it, I hate mysteries too.
But I do like to theorize.
There have been a lot of theories about what could take this market down.
COVID, social unrest - the economic fallout from both - China, inflation, deflation, the list is endless, yet so far nothing has really made a dent in what will now go down in history as the biggest stock market rally ever.
It’s like a mysterious puzzle, the type I doubly hate.
This tweet was from Thursday morning and later that day - after the market closed - a potential “something” reared its head.
Predictably, both stocks took a hit.
*Click any chart to enlarge. Please read disclosures at the bottom of this page.
Weekly: -9.51% YTD: 5.28%
The FB chart - which just last week looked so good - took some serious technical damage.
First off, it broke a rising trendline.
Second, it plummeted below a major support level, slicing through two major moving averages in the process.
And if that wasn’t bad enough, it finished at the lows of the day on massive volume.
Weekly: -13.05% YTD: -9.36%
TWTR got hit even harder, which is not surprising as it’s a horribly managed company and the chart was much weaker to begin with.
Allow me to tease my potential market killing theory out a bit here.
According to published reports, the companies boycotting Facebook and Twitter are doing so to protest the social media giants’ lack of action when it comes to combatting “hate speech.”
Call me a skeptic, but I don’t believe that corporations have suddenly decided to put altruism over money.
What I think is happening instead is a combination of things.
The first is obvious, COVID has impacted the economy tremendously, corporate profits are dropping, and companies are looking for any way they can to save money.
The second is not so obvious.
The emperor has no clothes, meaning, advertising is nowhere near as effective as those who sell ads – and provide the tracking data – tell us it is.
It’s always been that way, and companies are starting to figure it out.
From radio spots in the ‘30s, to billboards in the ‘50s, TV commercials in the ‘70s, digital ads in the ‘90s, right up to today’s social media campaigns, the “metrics” surrounding advertising have traditionally been fuzzy at best - and downright bullshit at worst.
And up until now, it’s been a perfect storm in this self-serving, self-perpetuating, and self-reinforcing industry.
Massive corporations, with way too much money, allot a huge annual percentage of it to advertising, combined with an intrinsic incentive to spend every last dime.
“We’ve got to allocate the rest of our budget before the year is out or we’ll lose it,” is a familiar refrain from the corporate advertising managers who have become a willing and proactive part of the ruse.
So billions of dollars are showered upon ad agencies and media outlets each year, who, in addition to incentivizing their clients to keep spending with wining, dining, and “perks” – paid for by the client’s money – have to provide them with some sort of “wink, wink, nudge, nudge” proof that their ads work.
“In our new campaign, you’ll see that ‘visits’ are off the chart, which has driven your ‘impressions’ and ‘engagements’ through the roof. We’ve also seen a spike in brand ‘mentions’ which we feel are going to lead to higher ‘conversion’ rates.”
Of course, it’s all BS.
Call me crazy, but despite the corporate claims of finding religion, if these social media campaigns were working as well as they claim to, nobody would be boycotting Facebook.
Instead, I think there is a seed change taking place
That companies are starting to realize they are advertising for advertising's sake. Doing the digital equivalent of putting an ad in the yellow pages because everyone else does.
And now, in this time of unprecedented unrest and cultural re-evaluation, boycotting social media platforms is a convenient way to save money while looking woke in the process.
Essentially, companies are using this convergence of macro events as cover for re-evaluating their entrenched beliefs around the ROI on ad dollars.
And here’s where it gets interesting.
What happens to the economy when corporations realize they can spend half as much on advertising – or on low/no-cost advertising – and get the same results?
What happens to the Facebooks, the Twitters, the Googles, and all the other tech companies built on ad-based revenue models?
And what happens to the tech-heavy indexes when these companies see their revenues plummet?
Now, let’s assume everything I just said is wrong.
Let’s say that companies aren’t having an epiphany about the efficacy of advertising and are just genuinely becoming more socially active, forcing social media companies to change their policies.
Either way, these platforms are screwed.
If they don’t change their policies they lose ad revenue.
If they do change their policies, they will also lose ad revenue, the revenue from the types of ads now considered unacceptable and thus banned.
In addition, they will alienate a significant portion of their current user base, who will engage less, and drive the already suspect success of digital ad campaigns lower, and with it, ad rates.
It’s hard to believe this won’t affect their bottom lines, their stock prices, and by extension, the indexes.
Of course, I could be completely wrong. And does it even matter when the Fed is taking the other side of the trade?
Ultimately, this is why we follow the technicals, so we don’t have to guess at what’s happening behind the market moves.
But it’s fun to theorize.
A little bit later I’ll go through all the charts and see what other damage occurred this week, but first, stick with me for a moment while I tell you a story.
I promise it will be worth it.
Great father. Good friend. Decent trader. Lacking husband. Solid drummer. Sometimes funny. Often A-hole. Terrible poker player. Too smart. Punk rock. Work in an ice cream shop.
- Former Twitter bio, @bclund
As of this past March I’ve been with my wife for twenty-seven years, though it seems like twenty-seven years and three months.
We’ve had some good times and some bad times, but as anyone who’s ever been in a serious long-term relationship knows, differences of opinion are a feature, not a bug.
And they exist in a hierarchy of seriousness.
Disagreements are the most common – and benign – form.
An argument often stems from a disagreement, the transformation complete once an uptick in anger and emotion is recognized.
And a fight is the zenith of this evolution, when things are often said that can’t easily be undone, or at least not without paying a heavy price.
Of particular note is that this is strictly a one-way progression.
A disagreement can quickly escalate to an argument, then even a fight, but never the opposite.
Nobody starts out in a fight that de-escalates into a disagreement.
Once you’re at “fight,” no matter how you got there, somebody is sleeping on the pull-out – guaranteed.
Thankfully, my wife and I have had relatively few fights during our sentence together.
But one of the worst ones taught me some important lessons about trading.
It was early in our relationship and we were out to dinner with my sister-in-law and her then boyfriend.
The evening was going along fine, and we were all deeply engaged in small talk when my future brother-in-law brought up the subject of poker.
Back then, I had both a regular home game and a standing Wednesday meet up with my buddies at one of the local card rooms, so he asked me how well I usually did.
But before I could answer, my future wife spoke for me.
“He usually breaks even,” she said.
It was understandable that she thought this was the truth because whenever I talked to her the day after a game and she asked how things went, I told her, “Eh, I broke even.”
Of course, this wasn’t really the truth. It was just a throwaway line I said to move past a subject she was only asking about as a courtesy and in which she had no real interest.
“No, that’s not true,” I said.
“What?” she said.
“Sometimes I win, and sometimes I lose,” I continued, oblivious to the fact that I had just stepped into the interpersonal relationship equivalent of a minefield.
“Wait, you always tell me you break even?” she said.
“Of course I don’t always break even,” I replied. “How could anyone break even every time,” I said confidently, as if the logic of the statement spoke for itself.
Apparently it didn’t, as an angry pall suddenly descended upon the evening.
Still, I pushed forward, naively convincing myself that I could salvage the night by being overly avuncular and deferential to my date.
Later, in front of the restaurant, after we said our goodbyes and the valet had run off to grab our car, the cold reality of my folly became apparent.
Turning to the future mother of my children, I blurted out with forced joviality, “Well, that was fun, wasn’t it?”
The look I got back landed somewhere in between “You’re an asshole” and “Don’t fucking talk to me.”
And so we stood there in silence for what seemed like an eternity.
Oh, the joy I felt inside, knowing that this paper-thin and temporary Détente would expire the moment our approaching car provided us with privacy.
1.32 seconds after closing my door, the fight was on.
“I can’t believe you’ve lied to me all this time,” it began and went downhill from there.
To be fair, it was an honest miscommunication; me, regularly throwing out what I felt was an obvious cliché, designed to signal that I really wasn’t interested in deconstructing the previous night’s events with someone who neither knows how to play nor cares about poker, and her, not recognizing this dynamic, thinking that I had actively been trying to hide from or deceive her about how much I won or lost.
But these misunderstandings happen in relationships, and before we knew it, 10 years had passed, we were married, and it would only be another 10 before the incident was (mostly) forgotten.
A few years after this incident I started going to therapy, where I learned to be more self-aware and to analyze my thoughts and actions objectively.
Reflecting back upon what historians and scholars will someday refer to as “The Break-Even Affair,” I realized that instead of trying to avoid talking about what I considered an uninteresting subject, what I was really doing was trying to avoid critical evaluation of my poker prowess.
I had convinced myself that sometimes I won and sometimes I lost, and in the end, it all evened out.
But did it really? I decided to track my poker results to find out.
What I discovered was that about 10% of the time I won small, 10% of the time I lost big, and 80% of the time I did roughly break even.
But overall, over time, I was a losing player, the realization of which forced me to confront my core beliefs about my poker skills, something I’d been subconsciously trying to avoid doing for a long time.
And what about the 8 out of 10 times that I broke even? How was that even statistically possible?
Poker is a perpetual game, meaning, there is no objective end to it. As long as you have money, the game can continue.
But the realities of life dictate that you have to end it, or at least end your session, at some point.
What I found was that as I was tiring of the game and mentally getting ready to call it quits, I’d make a subtle, unconscious evaluation of where I was at for the night.
If I were up, I’d play looser – freerolling on house money – in an attempt to take down one or two big pots before I left, which usually led to the loss of my profit.
If I were down, I’d focus extra hard, mustering what skill I had, in an attempt to get back to even before I had to go.
And more often than not, when I did hit break-even, that would be my cue to leave, having worked for four, six, even eight hours just to end up with a push.
A few years later, I recognized this trait in my trading.
If I were up for the day - or the week - I’d start trading looser, taking on more risk. After all, I could afford to, I was playing with “house” money.
And if I were down, in a bid to get clean before the closing bell, I’d focus and work extra hard to dig myself out of the hole.
I’m going to talk more about this dynamic and what I did to correct it in a future Lund Loop, but for now, let’s get to the charts…
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Talk to you soon.
P.S. It should go without saying - but I’ll say it anyway - all opinions expressed in The Lund Loop are my own personal opinions and don’t reflect the views of my employer, any associated entities, or other organizations I’m associated with.
Nothing written, expressed, or implied here should be looked at as investment advice or an admonition to buy, sell, or trade any security or financial instrument. As always, do your own diligence.