One day's change in the action isn't a trend. There are no victory laps to take for bears one day from all-time highs. I suppose there are some small victories to be had, but the bulls still control the narrative.
The biggest change may be the fact we're finally seeing a little weakness in Apple (AAPL) , though not eye-popping. The eye-popping belongs to Tesla (TSLA) which printed an unbelievable $540 in the pre-market on Tuesday and a low of $405 today. That's a 25% reversal in a 30-hour time period. Of course, we can't forget Tesla posted a 12% gain on Monday, the first day shares traded post-split.
I tried to think about the best way to explain the recent Tesla move higher. It wasn't exactly a short-squeeze in the traditional sense, but the weekly options market definitely created a scenario in which out-of-the-money call buyers could have possibly forced market makers to continually buy the stock in order to maintain a delta neutral position. And when you think of the post-split price, suddenly those far out-of-the-money calls could be bought with a few hundred each rather than the thousands of dollars required pre-split. If operating against an already open long position, you can more than offset the time decay of the calls with gains in the underlying stock.
However, I think another scenario comes into play. We have a new, fearless breed of momentum investors in this market. This is the explanation I've struggled with explaining to other people, but I think I have it now. Although the Texas Hold 'Em poker fad has regressed, the game is still popular and I'm betting most people have at least played a few hands.
Now, any rational individual will learn the rules first, watch several hands being played, and generally be a bit more conservative at the beginning. Even pros will observe and attempt to push when they hold a strong advantage. And you can have tables running smoother with the most skilled players generally coming out ahead, but what happens when a wrench is thrown into the system? What happens when a player sits down and gets aggressive pre-flop hand after hand after hand? Those big bets will scare off timid players. Those big bets will scare off some speculative hands as well. Those big bets will eventually draw in big money.
And the big money can suddenly move to the hands with a bit more luck than skill, at least for a while. We all know luck eventually runs out. We know that the big pusher will overvalue hands. They may win some, but if you continually overvalue hands, eventually your luck will run out and you'll realize the true value of the hands.
I believe that is what happened with Tesla when it ran into the $500s. Some of the recent traders took a seat at the table and bet heavy pre-flop day in and day out. In the case of the market, we're talking pre-market and post-market. Now, combine this with some larger money focused on pushing action into weekly and short-term out-of-the-money calls, and you create a scenario where multiple players are forced to go all-in pre-flop along with the aggressive buying players.
At some point, luck and firepower, erode. Today, we saw some of that with Tesla as shares nearly touched $400. Since that time, they've bounced 8.5% from the lows as some players sitting short likely pulled their chips from the table. After being down some 15%, I'd admit I was happy to get back into the black and decided to walk away from my short. I threw on a butterfly iron-condor for entertainment purposes, but I'm essentially out of anything meaningful here. I'm not equipped for the players at the table now.