It was pretty fascinating to watch the end of year sell-off and rebound this week, and today, on Friday. Across all of my networks, and as I wrote the other day, countless people were commenting that the sell-off was specifically Fed and Macro driven. As mentioned, I’ve never seen so many people talk about the Fed as I do today.
So let me provide an alternate point of view: the sell-off sparked an intriguing moment of game theory for those engaged in tax-loss harvesting and those managing specific positions in low liquidity environments. With Christmas coming, and end of year, and only 6 trading days left, the Fed becomes the perfect excuse to spark a particular event, especially with the following data in mind:
For investors focused on tax-loss harvesting, the sell-off may have confirmed or even necessitated some sales. For option sellers, with the data above in mind, that sell-off was a work of art. They just banked quite a bit.
However, the real damage occurs when those holding significant winners sense even a hint of fear, prompting them to sell before realizing long-term capital gains. This creates a delicate balance, especially with only seven trading days remaining in the year. A strategic battle is underway between those leveraging tax strategies and those anticipating a market washout for specific bets that are being placed with such low liquidity.
So, all in all, as I saw it, the Fed’s announcement served as an opportunity to accelerate tax-loss harvesting at greater velocity. For buyers, this creates a strategic window: pressing the market down by another 3% to 5% over the next 1-3 trading days could force additional sales. This approach sets the stage for starting new positions before the year ends, creating a strong foundation for the new year with a refreshed participant base.
All of this as a brand new productivity tool comes to market, in force: AI.
Here’s how I marked up the chart:
You must be logged in to post a comment.