"The bullish momentum and expectations in the market are still strong!"
Seeing the pound exchange rate recover from its intraday low opening so quickly, in Hong Kong, inside Huayi Capital, in the trading room of Huayi Chengyuan No. 1 main hedge fund, Qu Zecai exclaimed.
"It's fine." Su Yi smiled and said, "The bearish sentiment and expectations in the market are rapidly growing under the continuous bearish outlook and short selling of more and more investors, speculators, and major institutions. A brief bullish counterattack at this time cannot change the oscillating trend of the pound exchange rate."
"It feels like the current trend of the pound exchange rate is somewhat stuck here."
As Su Yi spoke, Meng Shengfei, the manager of Huayin International Investment Department 2, which is linked with Huayi Capital, responded,
"Based on the news currently disclosed in the market, and the various information that has emerged, it is clearly insufficient to help either the bulls or bears in the market break the confidence of the other side, thereby leading to a one-sided breakout trend."
"At this time… the pound exchange rate being stuck in the 1.5300 to 1.5400 range, should it be considered a good thing for us?"
Kong Fansheng, the manager of Huayin International Investment Department 1, said,
"With the market's net long positions still accounting for over 700,000, and under an oscillating market trend, time is clearly on our side."
"Old Kong, why do you say that?"
Meng Shengfei asked, somewhat puzzled.
Kong Fansheng responded:
"Because if the trend of the pound exchange rate repeatedly falls short of bullish expectations and consistently fails to break upward… then the bearish rhetoric in the market, as well as the short-selling ideas and actions of various institutions, will become increasingly strong, numerous, and concentrated. In other words, as market trading time progresses, the foreseeable bearish force in an oscillating market trend will only grow larger.
Furthermore, the continuous oscillating trend of the pound exchange rate can easily make long investors and speculators, who have higher holding costs, mostly established positions above 1.5350, and still hold significant heavy positions, uneasy, causing them to follow suit with take-profit rebalancing or stop-loss liquidation.
Although, when the market trend is unclear, the short position holders in the market will also have such concerns and will also perform take-profit or stop-loss liquidation due to brief drastic market fluctuations.
However, looking at the pound exchange rate trend over the past week, it is clear that at this level, the cost of new short positions is very favorable, while the cost of new long positions is clearly unfavorable.
In other words, at this moment, the short and long retail investors and speculative funds in the market, the impetus for long positions to take profit or stop loss and close positions, under the influence of different holding costs, is definitely greater than that for short position holders in the market.
And this is also one of the fundamental reasons why the number of net long positions in the market continues to sharply decrease, and the gap between long and short positions in the market is getting smaller and smaller."
"Mr. Kong makes a lot of sense."
Frederick, the hedge fund manager of Aberdeen Asset Evolution No. 1, listened to Kong Fansheng's analysis, agreed wholeheartedly, and responded with a smile,
"The market news feedback over the weekend clearly fell short of the expectations of bullish investors, which is why the pound exchange rate opened significantly lower this morning.
However, due to the influence of habitual thinking among previous intraday short-term speculators, they believed that an oscillating trading strategy of going long below 1.5300 and going short near 1.5400 was most consistent with the current market development.
Therefore, after the pound exchange rate opened significantly lower in the morning, a large number of long position orders surged, pushing the pound exchange rate to quickly rebound back to the 1.5300 level."
"So… everyone thinks the pound exchange rate will continue to oscillate around the 1.5300 and 1.5400 range?"
Meng Shengfei pondered for a moment after hearing everyone's analysis and their internal opinions, then continued,
"But I don't think so."
"Oh?"
Kong Fansheng said with slight surprise,
"Then what are your thoughts?"
Meng Shengfei chuckled and said,
"I believe that with a large number of net long positions still existing in the market, especially when market news and sentiment are insufficient for major bullish institutions to continuously force a short squeeze, the upward rebound momentum of the pound exchange rate will only get weaker.
Furthermore, I think at this time… it is still very necessary to continue concentrating funds to guide other bearish and short-selling funds in the market to follow suit and increase their positions, and at the same time, guide long investors with unstable holdings to collectively take profit, stop loss, and rebalance orders, continuing to put pressure on the pound exchange rate trend."
"Continue to invest funds to exert pressure?"
Kong Fansheng inquired.
"Yes!"
Meng Shengfei nodded firmly and continued,
"The current market sentiment feedback is favorable to us. If we continue to invest funds to exert pressure, trying to suppress the pound exchange rate below the 1.5300 level, then the bullish pressure in the market will be even greater. Those long position holders who were already hesitant will feel even more hesitant and uneasy.
Furthermore… Judging from the market trends of the past approximately ten trading days, the major bullish institutions in the market should have increased a lot of long position orders at levels above 1.5300.
This means that most of the long positions held by these bullish institutions have a cost above 1.5300. If we suppress the pound exchange rate below 1.5300, then most of the long position orders held by these bullish institutions will incur floating losses.
These floating losses will erode the profits from their previously established long position orders and will bring immense pressure to their overall holdings. With such immense pressure on their holdings, then it will be impossible for them to continue investing heavily when the market trend is not particularly clear.
Coupled with the fact that there are far more long positions than short positions in the market, many hesitant and wavering long investors taking profit or stopping loss and rebalancing orders will suppress the market trend.
I believe that even if we don't continue to invest massive amounts of capital, we can still gain absolute operational initiative in the market."
"What Mr. Meng said… seems to make some sense!"
Frederick pondered Meng Shengfei's words for a moment and said with a smile,
"Using the news, sentiment, and the imbalanced long and short positions in the market, concentrating funds to suppress the market, interfering with the trend of the pound exchange rate, shattering the psychological expectations of many previous short-term bullish groups in the market, and the psychological barrier of 1.5300 for the pound exchange rate, will indeed deal a certain blow to many bulls and many bottom-fishing long speculators conducting intraday short-term trading, and it will also be beneficial for us to gain the initiative in market operations."
"I also think this strategy is good."
Su Yi likewise responded with a smile.
"However, continuing to concentrate funds, increase short positions, and suppress the market trend will also put significant pressure on us."
Qu Zecai, who heard the discussion, thought for a moment and reminded,
"CEO Su, our current holdings are already quite heavy, not to mention that major exchanges and market makers have already raised the trading margin ratio for the pound exchange rate. If we proceed with the strategy Mr. Meng described, I'm afraid our position risk will sharply increase.
Moreover, if a large-scale concentrated increase in positions to suppress the market does not yield the expected strategic results, then the bullish counterattack in the market might become even more ferocious.
My suggestion is… we should still keep our positions within a reasonable and safe range. We should keep sufficient reserve funds and wait for the results of the national referendum on June 23rd, which is Thursday, and then place our final bets once the market trend becomes completely clear."
Su Yi knew Qu Zecai was a cautious person and understood what he was worried about, so he couldn't help but smile and say,
"We still have about 400 million US dollars in remaining reserve funds, right? These 400 million US dollars are completely sufficient to withstand the risks caused to our positions by market fluctuations before the referendum results are announced.
Furthermore, with the 'using a small force to move a great weight' operational strategy Mr. Meng described, with the cooperation of market sentiment and news, suppressing the pound exchange rate trend below 1.5300 actually won't cost much capital.
As long as the pound exchange rate is quickly suppressed back down, the group of short-term bullish speculators who previously conducted intraday trading based on habitual thinking will experience a collapse of confidence, or the sentiment and idea that the market trend has already changed, thereby driving them to make corresponding changes in their trading strategies and execute quick stop-loss operations.
As long as we can induce this group of short-term bullish speculators to change their expectations and trading strategies, then the existing bullish forces in the market will experience a certain degree of internal collapse, forming a certain degree of a 'longs killing longs' situation.
Therefore, guiding such a market trend and striving for operational initiative in the market, the price we pay will not be very high."
"CEO Su is right."
Frederick said with a smile,
"Once the pound exchange rate effectively falls below the oscillating platform between 1.5300 and 1.5400, then the intraday bullish speculators in the market will definitely quickly change their expectations for the market and perform stop-loss operations, and at the same time, they will not dare to rashly continue long positions without concerns near 1.5300."
After speaking, Frederick did not wait to continue discussing with Su Yi, Kong Fansheng, Meng Shengfei, and others.
He immediately instructed Dennis behind him to quickly relay the corresponding trading orders to the traders in each group within the trading room.
And at the moment his order was issued, Huayin International Investment Department 1 and Investment Department 2 also began to act.
At the same time, Su Yi also quickly turned and instructed Qu Zecai to have the traders in the trading room continue to rapidly increase short positions to suppress the pound exchange rate trend.
With the joint action of the three major institutions and their respective groups of traders, and with tens of millions, even hundreds of millions of dollars, rapidly invested in an instant, when a large number of new short orders emerged on the pound exchange rate chart, the pound exchange rate trend rapidly plummeted, like 'a waterfall plunging three thousand feet'.
At 10:56 AM, less than 5 minutes after the three major institutions took action, the pound exchange rate plunged below the 1.5300 mark.
Immediately after…
At 11:03 AM, the pound exchange rate continued to fall, breaking below 1.5290.
At 11:17 AM, the pound exchange rate fell to the 1.5270 level, wiping out all the efforts of the bulls since the morning opening.
And facing the pound exchange rate falling back to the opening level once again, at the same time, facing the continuous plunge of the pound exchange rate, the continuous sharp increase in short positions in the market, and the continued sharp decrease in net long positions, it was indeed as Su Yi, Kong Fansheng, Meng Shengfei, and others predicted…
Previously, a large number of intraday short-term speculators who had aggressively gone long at 1.5300 in the morning, believing that the pound exchange rate would continue last week's trend and oscillate around the 1.5300 and 1.5400 range, instantly began to panic.
Among them, many intraday speculators with keen market sense and decisive minds, had already begun to liquidate their positions with unconditional stop-losses.
And with these groups of intraday speculators who had gone long in the morning all stopping losses, and the three major institutions' continuous short-selling actions, the entire pound exchange rate market, as further trading time elapsed, a "longs killing longs" pattern quickly emerged.
At 2:12 PM, under this "longs killing longs" situation, the pound exchange rate effectively fell below 1.5250 and further slipped towards 1.5200.
(End of chapter)