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Subject:  The BIG picture Date:  1/28/2021  4:39 AM
Author:  captainccs Number:  117049 of 117759

The last couple of market days can be nerve wracking but they have to be seen as part of the BIG picture. Let's see how good a painter I am!

Growth stocks are expected to be volatile and we get used to "normal" volatility but the last couple of days have seen volatility on steroids. Upside volatility makes people ecstatic but downside volatility is cause for despair. I "jumped" into Cathie stocks recently without trying to time the buys by looking at the charts of the individual stocks hoping for better entry points. How did that work out? On average I've held these stocks for 14 calendar days and in the aggregate they are up 3.8%. Multiplying by 24 that's over 90% annually! That's part of the BIG picture!

The other BIG question, why the sell-off? The end of the bull run? The coming of the expected collapse? Or just temporary supply and demand? I don't know but this morning I watched a talk about the GameStop short squeeze which brought the BIG picture into better focus.

Extraordinary market gains bring short sellers to the market. What happens when the shorted stocks, like TSLA, keep on going up? Most explanations stop at the plight of the short sellers but that sells the story short (sorry, could not help myself! ;). Let's look at the BIGGER picture.

Suppose a short seller has a $100,000 brokerage account held in long (Cathie?) stocks. He decides to short TSLA selling 100 shares at $700. The short borrows the shares, sells them, and keeps the $70,000 in the account. TSLA doubles to $1400. So far it's an unrealized loss.

Now the account does not have the margin power to support the short position so the short gets a margin call. If the short does not have additional resources the broker will close the short position which takes $140,000. There are $70,000 cash in the account. Where does the other $70,000 come from? The broker sells enough shares, of his choosing, to cover the $70,000 shortfall. "Of his choosing" has implications! The account holder has no say, the broker probably sells the riskiest shares, the Cathie shares?

That's the butterfly effect in action, an unknown GameStop short seller in China makes your stocks go down!

GameStop saga is about 'working class vs hedge funds': Reddit WSB user

Denny Schlesinger
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