Friday’s news regarding the de-listing of Chinese stocks from U.S. exchanges by the Trump Administration hit the market hard that day. As expected, however, the Treasury Department and the Administration walked that back over the weekend, leading to a small rally on Monday. In my GVR and blog posts on Monday, I noted that this smelled of a classic alibied selling situation.
This is something Bill O’Neil told me about long ago, and I have discussed it in many past reports. When institutions and big money want out of the market, they will participate on the sell-side when negative news hits. Once the original news is mitigated or shown to be less serious than originally thought, the market can then rally, at which point the big money comes in and sells again.
In this manner, the original news becomes an alibi for a big round of selling. But institutions cannot conduct all their necessary selling operations at once. Thus, if the news is sketchy enough, as it was on Friday (I noted in my weekend report that the chance of de-listing was slim to none), then a rally is triggered as gullible buyers consider the ensuing mitigation of the original news to be an all-clear sign.
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