Nasdaq Toppy

The Nasdaq blew off on Monday, as did TSLA, the icon of this speculative mania.  It is now time to get short the bubble, as the parabolic moves signal end of trend behavior, as the smug tech investors are getting super greedy with their call purchases, overwhelming the put volume.  Now is the time to buy puts, not calls. 

The volatility is still sky high, even near the highs, as the SPX clearly can't sustain high prices for long.  Look at the big intraday reversal on Monday, as well as the immediate gap down today after the big gap up yesterday.  These are not normal bull market moves, but a signal that we have a range bound market with the market getting more vulnerable with each passing day.  This isn't like the June 8 top situation, it is worse.  You've had another 40 days for potential energy to build up for the downside move, as bullish complacency has increased despite the broader market going sideways during this period. 

I usually don't look at intraday chart patterns for longer term forecasting, but Monday sticks out with how TSLA reversed viciously along with the Nasdaq 100 after making all time highs for both.  Monday happened after the most intense parabolic rally since the dotcom bubble.  And tech stocks are so loved here, I can't imagine there being too many potential buyers of those stocks.  They are overowned and overloved. 

The number one source for market positioning and investor psychology is Robinhood.  It covers the zeitgeist of this market, and needs to be followed regularly.  There is talk that Robinhood investors are doing better than hedge fund managers, as if that's some kind of amazing accomplishment.  Dumb money can have success for short periods of time, its how the stock market casino tempts them to keep coming back and depositing more funds into their brokerage accounts.  But overall, the best stocks to short are the ones that have gotten the most popular.  Here is what has happened over the past week on Robinhood:

I've labeled EV stocks as EV, Coronavirus stocks or related plays as CV.  The rest of the popularity list is littered with either big cap tech or the flavor of the week stock plays.  This is vastly different than what topped the leaderboard in April and May, which was filled with airlines and cruise stocks.  I can only imagine how poorly the EV and CV stocks will do in the coming months, as they are saturated with Robinhood money.  Once you buy, you are a potential seller.  Being popular with Robinhood means there are a lot of potential sellers, most of them who are looking for fast money, not a long term investment. 

AAPL, MSFT, AMZN, FB, GOOG, TSLA, NFLX are the go-to stocks for institutions and retail traders when they want to invest.  They all happen to be some of the most overbought stocks in the market.  The concentration of market capitalization in this stock market tops anything we saw during the tech bubble.  And the market is overestimating the potential earnings growth for all them, as they are either such a huge part of their market (AAPL, MSFT, AMZN, FB, GOOG) that they have little room for growth, or they face lots of  potential competition which investors are ignoring (TSLA, NFLX). 

Yes, stocks will probably always maintain overvalued levels from a historical perspective, with all the money being printed, but that money can flow to a number of other assets besides stocks, as we've seen elsewhere in the world. 

I missed shorting the good news top yesterday, it was a big mistake.  With all the "good" Covid vaccine news yesterday, instinctually I should have been looking to short in the premarket.   I waited and missed the great short entry above SPX 3225.   Lately, my focus has been too much on the daytrader populated stocks that I haven't given my full attention to the futures market.  It's probably why I missed another great shorting opportunity in the Nasdaq on Monday when it was so egregiously overbought on all time frames.

But shorting the indices is where the money is going to be in the coming weeks, not these daytrader stocks.  When the SPX and NDX get weak, the daytraders don't trade as much so there are fewer opportunities in individual stocks.  Now I'm going back to focus on the broader market, where the action is going to be. 

I will not miss the next chance to short, even if it means getting in a bit early.  The big drop is imminent and waiting for the perfect spot is being penny wise, pound foolish.  Big picture, even a short right here on the gap down is a good entry point to short down to what I am picturing is a likely waterfall decline in August.   Can't wait much longer before the short train leaves.