Is this bubble about to burst?

By Jani Ziedins | End of Day Analysis

Jan 26

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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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.