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By Jani Ziedins | Free CMU
Cracked.Market University:
Everyone is talking about GME, but how can you not when we are witnessing something we will likely never see again in our lifetimes?
If GME at $40 seemed ridiculous, then $100 is absolutely bonkers. And I can’t even begin to think of a word that adequately describes the $483 it hit this morning.
If someone told me a stock would explode 2,463% in four short weeks, surely they just cured cancer, cracked the code for cold fusion, or invented an anti-gravity machine. Obviously, whatever they did, it would change life as we know it.
Yeah, no. GME is a pedestrian company that sells used video games on physical disks. And not only did this company not cure some great ailment, it probably won’t even survive long enough to see the 2024 Paris Olympics.
That probably explains why the stock collapsed 77% in two short hours this afternoon as it tumbled all the way back to $112.
The most fascinating thing about this week’s move from $65 -> $483 -> $112 -> $193 is EVERYONE was right!!! The bulls were right about this “going to the moon.” And bears were right that it would collapse in a gigantic fireball.
Between this week’s 640% surge and subsequent 77% collapse, everyone had the chance to be right. And most GME speculators were sitting on a huge mountain of profits. Some profits even reached seven figures!!!
But as good as this seemed for everyone involved, virtually all of these traders will ultimately lose money. And not just a little money. But they will likely lose all of their money on this trade. (And some will lose even more than that!)
The problem is when these people are sitting on a mountain of profits, rather than thank their lucky stars and lock-in these once-in-a-lifetime profits, they are too busy gloating and taunting the other side. Instead of being satisfied with nearly $500, bulls insist on waiting until this goes all the way to $1,000. And bears that captured a 77% tumble in 120-minutes, rather than jump on this historic move, they demanded it to go all the way to $5.
And you know what, both sides are equally guilty of holding too long and letting these historic profits evaporated before their very eyes. As the saying goes, “bulls make money, bears make money, and pigs get slaughtered.”
Don’t be a pig and take these spectacular profits when you have them. Because if you don’t, they will almost certainly be gone in a few hours.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slumped 2.5% in the biggest one-day loss since the election. While everyone is waiting for the inevitable demise of these frenzied bubble stocks, they were some of Wednesday’s few winners with GME popping 135% and AMC adding a staggering 300%.
While experienced investors are growing concerned about bubble mania, clearly the fringe speculators driving these frothy stocks higher are not heeding the clear and obvious warnings.
As I wrote yesterday, bubbles take far longer to inflate and pop than most people realize. As crazy as things appear right now, most likely we still have a ways to go before this bull market is taken down by valuation worries. But just because higher prices are ahead for the indexes doesn’t’ mean we cannot take a few step backs along the way.
While I still believe higher index prices are ahead, that doesn’t mean I’m holding “no matter what”. As I wrote previously, I’ve been following this rally higher with stops in the mid to upper 3,700s and those stops got hit today. Regardless of what I believe, that’s my signal to get out and reevaluate. As easy as it is to buy back in, there is no reason to stubbornly hold a falling market.
Most likely this is just another false alarm on our way higher, but I’m not willing to bet my money on it. If prices bounce tomorrow, I’ll get back in. If they keep falling, even better, that means I’m entering at even lower prices.
I still like this market but that doesn’t mean I’m blindly following it. These are the times we follow our thoughtful trading plan, not shoot from the hip while overcome with anxiety and second-thoughts.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 continues hovering near all-time highs. As I often say, something that refuses to go down will eventually go up. And that’s definitely the case here.
With the election behind us, Covid vaccinations finally starting to roll, and infection rates coming down from the post-holiday peak, investors need something new to worry about. And right now bubble talk is taking over the financial headlines with outrageous moves in names like GME, BB, TSLA, and Bitcoin.
I’m equally concerned by these obviously unsustainable moves and am certain they will end in tears for most of the retail investors piling into these trades. But I also know it takes a long, long time for bubbles to burst. The dot-com bubble started in 1995 with Netscape’s IPO and it didn’t burst until 2000. That was five years worth of inflating.
Without a doubt, we are already multiple years into this inflation and the burst is a lot closer than five years. But it is still more than six months out and it might not even happen until next year or the year after. Do we really want to pull the plug on a great rally two years early because a handful of stocks are obviously overvalued?
I don’t condone the buying frenzy going on in parts of the market and it will end poorly for those gullible chasers. But for the time being, there is nothing for index traders to do except keep following this bull market higher. When the time comes, there will be plenty of concrete signals in the indexes’ price action. Until then, stick with what is working.
If there is one thing we know for certain about bursting bubbles, they don’t make new highs.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
I don’t cover penny stocks because a lot of unsavory things go down in that shady portion of the market and it isn’t suitable for most investors. That said, I never expected to see penny-stock style manipulation occur in a well-known, billion-dollar company.
No doubt almost everyone is aware of the sheer craziness going on in GME. The stock rallied nearly 1,000% since January 1st, with the biggest portion of that move taking place this morning. But not to be outdone, this morning’s 150% gain was quickly erased by a 50% plunge from the highs a few hours later. Easy come easy go.
While it is tempting to jump aboard this seemingly easy trade, these things are best watched from the sidelines. A lot of people are going to lose a lot of money trading this and you don’t want to be one of them.
That said, I’m not really interested in analyzing the crazy hive-mind driving GME’s wild swings. But I am interested in what something like this tells us about the state of the broad market.
Having been around for the wild dot-com days, there are some noteworthy parallels. While most of the market isn’t outrageously overvalued, there are several companies that have been driven to undeservedly high levels. GME is only the tip of the iceberg. TSLA being the fifth most valuable company despite the fact it hasn’t figured out how to turn a profit selling cars is a concern. (TSLA’s profits come from selling tax credits, not cars.)
By all accounts, the Robinhood crowd has lost its mind. And while it seems like a big pullback in the share price of GME, TSLA, and bitcoin shouldn’t affect the wider market. This fails to take into account stock valuations are a game of confidence. If one segment pops, that stink spreads to everything around it. Given how far we came since the March lows, there is a tremendous amount of air underneath us if sentiment flips from a half-full to a half-empty.
That said, even with all of the warning sirens going off, these things usually go even further before they pop. We might be in the later innings of this game, but we are not at the end and it is most definitely not time to abandon ship simply because a few stocks have gone “too far”.
The greatest strength we have as independent investors and traders is the nimbleness of our size. We can flip from full-long to full-short with a few clicks of the mouse. We don’t need to predict the market when we can react to it in real-time.
Stick with what is working as long as it keeps working. But be ready to get out once the cracks start showing because when this goes, it could get really ugly.
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By Jani Ziedins | Weekly Analysis
Free Weekly Analysis:
This was another record-breaking week for the S&P 500. The index rallied 1.9% and all-time highs continue getting even higher.
Biden assumed the presidency on Wednesday with far less drama and rancor than we’ve seen in recent weeks, which was a welcome sight. That said, investors were not really concerned and the market rallied modestly on the news of a peaceful transition. But this makes sense. Stocks were not selling at a discount because of this political uncertainty and that meant there wasn’t much room to bounce when reality turned out less-bad than feared.
If we step back and look at the big picture, this was one of the most contentious elections in recent memory and Covid infection and fatality rates are off the charts. How does the stock market react to all of this bad news? By carving out fresh highs.
If this bull market really was as overbought and fragile as the cynics claim, there have been more than enough bearish headlines to send this crashing. Yet here we stand.
As ugly as the headlines have been, these things are old news and already priced in. Investors are always looking six months ahead and no matter how bad things look today, between a highly effective vaccine, warmer summer months, and an endless supply of free money, investors are actually in a pretty good mood.
While it feels like this market has gone too far, it always feels that way at the highs.
Stick with what has been working and that is holding for higher prices. Keep our stops in the mid to upper 3,700s and see how far this goes.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Exactly one week ago, I wrote a bullish post about FB as the stock fell off a cliff:
This latest leg lower kicked off after [FB] announced it was suspending Trump’s accounts for violating their terms of service. No doubt investors are expecting backlash from Trump supporters and there will be an incremental hit to their revenues.
But as far as boycotts go, this one will be mild. Very few corporate advertisers are interested joining this boycott because they don’t want to get dragged into the dumpster fire taking place in Washington D.C. That means FB’s advertising rates won’t take a meaningful hit.
As far as users go, FB’s target audience is suburban soccer moms that share cupcake recipes. They are highly unlikely to abandon FB and head over to these unmoderated free speech alternatives.
Seven days later and the stock is up nearly 10%. Not bad for a few days of work.
Now don’t get me wrong, publishing that post on the exact day this stock bottomed was pure luck. But recognizing the buying opportunity was most definitely not luck.
Trading successfully comes from recognizing opportunities when the odds are stacked in our favor. One of the most profitable trades is when the herd starts rushing out of a perfectly good company for an immaterial reason. And even when the reasons are legitimate, most of the time the stock market takes the selling too far and even defective stocks are primed for a snapback.
Headlines affecting FB over the last several weeks and months will do little to damage one of this country’s most profitable companies. I would view any further weakness in FB as a buying opportunity. Unfortunately, I don’t think we will get that lucky because this stock is giving off vibes it is ready to head back to the highs.
A big shoutout to everyone liking and sharing these posts!!!
That positive feedback motivates me to keep writing these free posts!
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What’s a good trade worth to you?
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