Stock Mania Spreading Globally

It was the Robinhooders who have gone crazy over stocks, and even more crazy over call options.  Now the speculative fever is spreading to China.  I can understand the Robinhooders feeling like they missed out on a long bull market and are rushing into stocks after the pandemic, but it is hard to understand the sudden burst of stock mania in the Chinese stock market.  It hasn't gone anywhere for the last 15 years, and listed companies have issued a ton of stock to the individual investors who have choked and drowned in the supply. 

But the Chinese stock investors are a bunch of sheep.  They read the Chinese government pump up the stock market and they jump in with both feet.  They still trust their government after being screwed over multiple times (2001, 2007, 2015).  That is the definition of insanity.  

This isn't a positive sign for future returns.  When earnings are contracting and retail investors across the world buy stocks with reckless abandon, its intuitively obvious that it probably doesn't end well for them.  And most of these stocks that they are buying are pure crap, and total speculations on dreams of buying the next TSLA.  Of course, there are those big cap tech investors, who invest by looking in the rear view mirror, but they are buying at nosebleed valuations in the most popular stocks in the world.

The speculation is most rampant in the "electric vehicle" stocks.  That is the heart of the retail mania, as you can see in the Robinhood popularity chart. 

The top 3, NIO, TSLA, and SOLO are EV stocks.  Also on the list are PLUG, NKLA, and BLNK, which are EV or EV battery stocks.  Basically, Robinhooders are either long EV stocks, coronavirus plays, airlines, or mega cap tech stocks. Those happen to be the stocks that are the most overvalued, or have the worst fundamentals (airlines). 

This week, we have seen the return of rampant call buying, as the put/call ratios go back down toward early June levels.  That is without the big overall market rally that we had last time.  The rally has gotten much narrower, as the Russell 2000 trades like garbage, and the Nasdaq 100 drags the SPX higher. 

One positive for stocks is bond yields staying low despite the rally, so both bond and stock investors are feeling good right now.  There are lots of potholes and pitfalls coming up in a few months.  Covid second wave and election worries are the 2 big ones.  Unless we get a full blown wave of infections all over the U.S., it seems like the market doesn't care.  It knows another phase of fiscal stimulus is coming, so that is a backstop for any dips this month. 

The sooner the phase 4 stimulus package gets passed, the sooner this market will be able to go down.  And like any US government spending that goes on, I am sure it will beat expectations by a mile. 

With each passing day, more signs of an imminent top are showing up:
- Retail speculative mania 
- Aggressive call buying
- Narrowing breadth of the rally
- VIX staying high despite rallies 

This thing is getting ready to topple over.  Hard to stay on the sidelines and not jump in with both hands and get short.  I am just waiting for some positive news headlines to get short. 

Seeing some choppy intraday action since the nonfarm payrolls report last Thursday.  The market looks saturated with buyers, and upside from current levels looks limited.  We may have 3% upside, at most from here, which would be the June highs.  Downside is huge, of course.