Just when you thought things couldn't get crazier than 2021, they are getting crazier. Compared to 2021, the breadth of the insanity is less, but the intensity is greater. From late 2020 to late 2021, you had a speculative surge that included graded sports cards, pie in the sky NFTs, hundreds of worthless SPACs, meme stocks, and lots of tech stocks. In 2024, you started with the AI mania, which is still ongoing, but the fast money speculators are now migrating to the Trump mania, with Trump meme stocks like TSLA and PLTR leading the pack with bitcoin and its related names like MSTR and COIN.
You have fewer stocks participating in this speculative bubble, mainly because a lot of newbies got burned the first time around in 2021, and don't have the stimmies or the income to buy up the flavors of the day this time around. The survivors of the 2021 bubble popping are wealthier, more selective in their speculations, but still very reckless and fearless. 2022 wasn't painful enough, and was too short of a bear market to discourage these hogs from chasing momentum. That's why you are seeing such a quick comeback to now form a second bubble, just 3 years after the previous one popped. It's probably the first time in financial history that you have one bubble emerge so quickly after the previous one popped in the same asset class.
The 2021 bubble was about trillions of dollars of fiscal stimulus liquidity sloshing around looking for a home. The 2024 bubble is about US superiority, capped off with a Trump election victory, where almost everyone believes that the US has the best economy, and that US stocks are the best investment. The European and Asian stock indices have lagged the SPX badly this year, especially since April. The 2 biggest manias that we've seen this year, AI and Trump, are based in the US. You can only play both manias through US stocks. For AI, its basically NVDA, and a few tertiary names like AVGO, DELL, etc. For Trump, its TSLA, PLTR, bitcoin, and bitcoin related stocks. Sure you have some quantum computing names going crazy recently, but those are all small cap names, and a drop in the ocean compared to the AI and Trump related names.
Investors are moving their money in response to what they believe is US superiority. The inflows into US equity ETFs and mutual funds are the greatest in history. As a percentage of market cap, they are higher than anytime since 2000, including 2021.
The highest ratio of calls to put in the ISE since it started in 2006. The demand for put protection and bearish bets is historically low.
Despite this lopsided buying of calls over puts, the SKEW index is showing out of the money puts as being historically rich vs. out of the money calls. In fact, the SKEW hit its highest level in history last week. In the past, high SKEW readings have portended corrections in the SPX.
The ominous signs just keep piling up. If history is our guide, 2025 should be a massive inflection point, which will catch many investors off guard. Those are the moments where those who can look at the big picture will thrive.
When will this mania for US stocks end? It ends when the perception of a Trump presidency being bullish for the US economy and US stocks is broken. That could take several months into his term. The hype is greater than the substance. People are talking about deregulation and tax cuts but those are vague, and even if concrete steps are announced, the firepower will be limited. It won't be enough to overcome less immigration, tariffs, and possibly less government spending (due to DOGE, blocking Biden stimmy spending, etc.). Tax exemptions on tips or overtime is a drop in the bucket. Corporate tax rates are already low at 21%, lowering to 15% won't do much, and it may be hard to pass as its not something that's very popular among the public.
If there is no noticeable improvement in the US economy by the 2nd half of 2025, then you could see an exodus like you've never seen before in such a big asset class. A lot of the recent inflows into US stocks are coming from foreign countries, so they will have less tolerance for pain, especially if the US dollar weakens along with the SPX. A lot of FOMO money is rushing it. At the highest valuations in history. Resulting in the highest US household allocation to equities in history. There is a lot of hot money betting on this thing to continue. This isn't long term money being put in. Its fast money looking for fast returns. They'll run for the exits if things go downhill.
Don't expect much movement for the next 3 weeks, investors will be looking to delay capital gains into 2025, which should push out a lot of potential selling into January. At the same time, market looks overextended short term and overexuberant. There should be some systematic year end hedging coming in the next 2 weeks as December is the biggest hedging month for SPX options. Above average amounts of OTM call options sales / put option buys are likely to be initiated. Still holding a small short in SPX which I am stuck in. With the bond market suddenly looking stronger, not expecting heavy selling, so I'll look to exit sometime on any mild pullback within the next 10 days, to re-enter sometime at the end of the year or early next year.
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24 comments:
really want to short more but think there is a parabolic up move posible around Trump inauguration so will wait. been a tough year for me esp last 2-3 mos when I got the calls wrong
Next year should be a better year for shorts, especially for patient shorts willing to hold on for big moves. I actually think the rally post election is front running optimism about a Trump led economy. I expect a weaker January as a result of sell the news after inauguration and delayed capital gains tax related selling.
Hi any idea why is market suddenly turning weak today? Thanks
No idea, and that's a good thing if you are short. I think its the beginning of the annual renewal/rollover of December hedges, the biggest OI in SPX futures of all the quarterly expirations. Combo of call sells and put buys.
Long WBA 4/17 10 calls yesterday at 0.91
sold wba calls 1.55
Long QQQ 1/17 515 puts 6.85 70% position
Long more QQQ puts 7.05 Thinking about counting cards at morongo to see how I do
Count cards if you like gambling, not for the money. You're not going to make much unless you bet really big. And if you bet big while counting cards, you will get kicked out.
I feel that it took over 20 years of pattern recognition for my slow brain to break even trading. It took that much losses over time to break bad habits and stop emotional trading. But I still do it anyway and I wouldn't go far as to say I'm even breaking even. If I can do better than that it might be worth it to try BJ. What do you think? You think I can do it?
If I set out a goal to make $500 on average day/night at a casino is that totally unrealistic or somewhat?
It depends on the game conditions. Fewer decks, the better. Double deck is the best, but more heat there. And if you spread $25 to $400, you may be able to make $100/hour of EV in double deck. If its a 6 deck or 8 deck shoe, you have to spread $25 to $600 to make $100/hour of EV. Fluctuations will be huge, you are looking at either making $3000 or losing $2000 on an average session of 4-5 hours. If it gets streaky, you could make or lose $10K in a session. That will happen once every 10 times at least.
Counting cards is emotionally easy compared to trading. Its quite robotic and repetitive, not as exciting as you would thinking gambling in a casino. You just bet more when the count is in your favor and you have the edge, and you bet small when it is not in your favor, which will be over 90% of the time. Not complicated, but its easy to spot by the pit boss. If you are doing it for any decent amounts (top bet of $500+), you will get kicked out within a few hours at most casinos. So its a dead end with limited earning potential.
Wow so if I bet 20 or 40 at a time but one out of say 10 times I suddenly bet 100 then they spot things like that at large casinos like Morongo?
Alright never mind. I see that you say 500+ to get noticed. I guess to get serious about counting cards sounds like you need to go in with around 10K in cash and expect to lose that unless you're a natural. If the average good college graduate has better than a 50% chance, an edge, I might be able to convince my wife to go out to the desert casinos for some action. I need to find something to do with my life and studying charts and financials and reading other traders twitters gets very old after a while
Thought the movie The Card Counter was going to be my kind of movie. I love movies where they show people mathematically squeezing games of chance for statistical profit. But turned out the title was very misleading. Anyways it was good at first and got me wanting to count cards too.
I've counted cards, its not as romantic as you would think. You are betting the minimum and/or table hopping when the count gets bad about 90% of the time. When the count turns positive and you start ramping up bets, your edge is so small that the ups and downs are huge. I've lost $10K betting 2 x300 max in 2 hours. They might have been cheating though. Really suspicious place. But legit places, I've lost $6-8K in under 2 hours betting $400 max. The variance is not worth it, and you end up getting kicked out at most places if you bet over 400 and you vary bets like a card counter.
Studying charts, financials, and looking at Twitter beats 98% of jobs out there. Most jobs are boring. And the upside from trading is so much greater than most jobs.
Sold QQQ at 5 from around 7 yesterday. Both trading and cards is an element of rug pull
I'm going to disagree with this statement. It's like saying the upside from winning the lottery is greater than most jobs. Yes someone is guaranteed to eventually win the lottery and the upside for that person will be better but on average the average doctor or even average investment banker will do better than the average trader. Not that either of those are victimless jobs and their are plenty of people I know I went to school with who studied hard in college the entire way through and kept their grades up and got a 3.5+ GPA and a job at Bain, McKinsey, GS, Meta, Googl, etc and continued to climb up the ranks and now are directors/VPs/etc pulling in 500K or more a year. But most of these people are in their ivory tower worlds that they are not normal people themselves. So I am not saying that its better to have just put in all the grind and become a VP/Director in general but monetarily it beats trading 9 out of 10 times.
Even the average 9 to 5 industry schmuck who just punches in their time clock every day week and week out will in the long run beat out the average trader.
I often wish I never got into trading from the first place. I should have studied harder in school in the first place and never got into day trading ever. Not even for fun.
Now I can't even get away from it if I wanted to. Even though I know I have been losing money the whole time, just the possibility of winning back what I lost and the thrill of putting money on the line is just a rush in itself.
Now I am not saying there are people out there that have become Kirk Kazazians or David Lu's. These are the people at Tradescape that have gone on to become modern day Jesse Livermores.
But even Jesse Livermore blew himself up in the end. We don't know the story of Kirk Kazazian or David Lu because their story is not finished. So although we hear stories of riches and greatness the sad fact is that these people are really the top 0.01% of traders and even their run is not over. We don't know what will become of these people.
Long QQQ 524.78 Puts 1/17 @ 7.01
Trading has a much lower barrier to entry than other jobs. Anyone who can save up a few K can try to become a trader. That's why you have such a low success rate. If you had the same low barrier to entry to become a doctor or an engineer, you would have nearly the same rate of failure for those jobs.
And most people who trade don't take it seriously enough, they are just looking to make a bunch of money quickly instead of trying to make a career out of it.
Trading is similar to gambling, you have a lot of people who think they can win but only a few who have a winning strategy that can. And even some of those with winning strategies don't last because they are bad at risk management.
If trading is a rush, then you are probably betting too much. If you can't sleep well at night because of your positions, then you are probably betting too much. And if you are a long term loser at trading, you are probably betting too much.
Bet smaller.
And yes, you are right. Its better odds to just get a regular job than to try to be a full time trader. But the freedom, enjoyment, and top-level earning potential of trading is worth taking the monetary risk.
But yeah, I agree, if you need steady income, like most people do, then trying to be a trader is a bad choice.
Sold QQQ puts 7.43
Long DIA 441 1/17 calls 7.55
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