Using Market Internals To Trade and Predict Movement
Smart investors like using market internals to trade because it paints a clear picture of what direction the stock market, or certain stocks, are likely to move.
If the stock market was a car, then internals are the tools that let traders look under the hood to see how it’s running. The Nasdaq might look up on the outside, but market internals tell us where things are actually going… and sometimes momentum is opposite than what appears.
Using Market Internals To Trade and Predict Movement
In this video, Future of Wealth founder Lance Ippolito wants to go over using market internals to trade and forecast events like the gamma squeeze unwind we’re seeing in some of the highly shorted stocks: GameStop, Bed Bath & Beyond and Blackberry,
A gamma squeeze occurs when an investor(s) buys short-dated call options on certain stocks, driving up prices. This forces option sellers to do the same in order to hedge their trades on the underlying stocks.
This should, in theory, create a positive feedback loop, keeping prices high for a short period of time.
But when do these things actually work out in our favor?
So then you have names like we mentioned above making headlines, and every investor and degenerate gambler out there is chasing these stocks, driving them up 50% to 100%.
And then days like Monday happen. We witnessed them fall drastically intraday, some as much as 50% within minutes.
GameStop Corp. (NYSE: GME), for example, went from $159 to $90 in 15 minutes…
So how can we forecast market moves like that in order to give us some insight into when we should exit trades?
Market internals have never let me down and that’s why we like using market internals to trade.
Market internals are a group of indicators — using data from the stock exchanges — that help investors calculate the direction of stocks.
So lets say GameStop is looking like a Ferrari to a lot of investors, but the market is saying it has a Honda Civic engine.
What good will that red Ferrari be in the long run?
It’s going to look cool for those first couple rides, but it’s not going to have that same horsepower when you really try to push that gas pedal.
And the market has painted this picture for a while now…
Make sure to watch Lance’s video below to see how using market internals to trade can help forecast stock movement like GameStop, Bed Bath & Beyond Inc. (Nasdaq: BBBY) and BlackBerry Ltd (NYSE: BB) before they crash. Leave your thoughts in the comments section below and don’t forget to subscribe to Lance’s YouTube channel to stay up to date with all things options trading.
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