It was the Best of Times....

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.”

― Charles Dickens, A Tale of Two Cities

Just a few weeks ago, retail investors felt like they were on top of the world.  NVDA was hitting all time highs above 200, TSLA was above 450, PLTR was strong, and the quantum, nuclear, AI data center, and space names were all close to all time highs.  Now, there is absolute wreckage in the retail speculative favorites.  Retail investor hell.  And SPX is barely down 2% from all time highs.  

When we look back at this bubble, the story will be of how retail investors once again piled into the most overvalued companies and the most worthless assets, buying the most at the top, and riding it all the way down to the bottom years later.  History doesn't repeat, but it does rhyme very well.  This is 2000 all over again.  Back then, it was also retail investors who drove tech stocks to nosebleed levels, feeling FOMO, talking about stocks all the time, getting NASDAQ vanity license plates, only to see the market crash over the next 2 1/2 years.  

They say it takes a new generation for investors to forget, to get tricked by the market all over again.  Well 25 years is a generation.  Most of these retail investors who are piling into bitcoin, ether, quantum, AI, nuclear, space stocks were in diapers when the dotcom bubble burst.  They have no clue what's coming.   Now they have been conditioned to BTFD.  They believe that anytime the speculative garbage goes down, it will pop right back up, like it did from the bottom in April, all the way up to the top in October.  Or if there is a real bear market, then it will pop back up in a year or two, to much higher highs like from 2022 to 2025.  They haven't experienced a true gut wrenching bear market like 2000-2002, when the market went down for months at a time, with weak bounces that only led to more selling down the line.  

Retail investors have replaced hedge funds as the marginal source of supply and demand in the stock market.  It is clear as day that retail investors were driving the huge up move in speculative stocks and cryptos from May to October, and now that their powder is no longer dry, the demand for these names have disappeared.  Institutions don't want to buy their bags.  The only people even thinking about buying this speculative junk are retail, and they are already all-in.  

Now that retail has already bought up all these stocks and cryptos, they have less capital to actually put to work.  Therefore they've tried to get the most bang for their buck by moving from stocks to options.  Most of these speculative stocks are money losing companies in the Russell 2000.  The call volume has skyrocketed for these speculative names.  

I thought we wouldn't see the retail call frenzy like 2020 and 2021 again for decades, but its already happening, and even to a greater scale in 2025.  This is not sustainable.  In fact, the selloff in the past 2 weeks has been led by the Russell 2000, which is filled with these money losers that retail investors love.  The MEME stock ETF, which debuted a month ago, has basically gone straight down, losing 35% in a month.  During the same time period, the SPX is basically flat.  35% underperformance.  

Similar underperformance for bitcoin, which is getting pounded almost every day, now under 100K.  This so-called store of value, with all the "good" news pumping out from the White House, has managed to suck in a lot of late comer, me too investors who provided the exit liquidity for OG whales who have been dumping en masse for the past 5 months.  

Wall Street was not designed to enrich the retail investor.  It was designed to enrich the insiders, the sellers of stocks, the promoters, the investment banks and HFTs.  Almost all of the speculative garbage that peaked out in October had heavy insider selling.  Since that October peak, it has been straight down for the quantum, AI, nuclear, and space names.  

There are a lot of ugly charts out there.  A lot of blowoff tops.  My mistake during this latest pump and dump of these speculative stocks was to get in too early and get out too early, after making just a small amount.  I was still thinking that these stocks would stay afloat longer, and follow the Nasdaq more closely.  That was a completely wrong view.  Now its clear that these speculative stocks are trading on another planet, that is vaguely tied to the Nasdaq.  Its more like an on/off switch for these stocks.  Its either continuous buying, or continuous selling.  There are very few counter-trends that are worth playing.  You have to be a trend follower for these stocks.  I'm sure they'll be a dead cat bounce eventually, but probably from a lower price point.  

We got the relief rally on the government shutdown ending and then when the vote passed, we got the selloff.  Just a classic buy the rumor, sell the fact situation.  The market is no longer in an uptrend.  It doesn't mean we are in a downtrend.  Its a trendless market now.  The supply demand is much closer to equilibrium.  Which means that both rallies and selloffs will be shorter, and choppier.  You continue to hear more angst about AI, and its boondoggle nature which is starting to become more apparent with bears like Michael Burry screaming about it.  Its ironic that he's getting loud again right after he closed his fund, which probably incinerated a lot of investor capital by buying puts on high flying tech stocks for the past 2 years.  He probably didn't want to work for just a management fee while he tried to dig himself out of a massive hole to get back to his high water mark.  Better to just take his money and run, collect 100% of the profits for himself rather than sharing it with his investors when the bubble pops.  

We got some gyrations with Fed speakers coming out hawkish, putting the December rate cut into question.  It doesn't matter if the Fed cuts or not, as monetary policy without QE is toothless.  Rate cuts don't really matter now.  The short end is much less important than the long end of the yield curve.  With all the T-bill issuance and supply, you are probably taking away more interest income from investors than providing interest relief for borrowers by cutting rates.  Anything that would reduce the fiscal deficit (rate cuts will reduce the deficit) is a net negative for the economy.  Its the long end that matters.  And the Fed under Powell won't be doing QE, so it has no serious weapons to use for the next 6 months.

There are a couple of bullish catalysts for the next few months:  Supreme Court tariff decision and OBBB money coming.  I expect a short term bump up in the US economy for Q1 and Q2 when the tariffs are removed and the tax refunds hit peoples' bank accounts.  It could be enough to keep the market afloat even as the AI momentum weakens.  That would draw out the potential top to 2nd quarter of 2026, which would coincide with a potential good news top with the installation of a dovish Trump puppet Fed chair.  2026 should finally be the year that the long term bears get to feast.  

Still think this market will be choppy until November opex.  I doubt you get back to last week's highs this week.  Its possible that you do undercut last week's lows.  But I would think that any drop down towards SPX 6600-6620 would be buyable for a trade.  Nothing to do here, I need to see the market get to the edges of the 6600-6850 range to put on trades.