The Simulated Market

Tesla jumped this morning on news it wants a stock split (new shares need approval). Goodhart's Law is one way of understanding how a market becomes detached from reality. A stock split is meaningless in a financial market where investors can buy fractional shares, but many investors or traders clearly think it means something because they massively bid up the value of a company. It does matter in this context of a simulated market because the market doesn't respond to reality, it responds to internally-generated psychology and stimulus. The dichotomy of stocks like ARKK down two-thirds from their high and stocks like Tesla (and Amazon) still soaring on stock split news shows an entire year of brutal losses hasn't changed market behavior. Sentiment has changed, but like Pavlov's dogs, the bulls cannot change their behavior. I predict most will never change their behavior this cycle. Their impact on the market will be reduced and eventually eliminated by their dwindling account values.

Relatedly, XLY is almost back to 190, the underside of the topping pattern. Assuming the market doesn't go full bulltard, that would be the area to short at.