Market Analysis

Warning

Raising red flags during a bubble is a thankless job. The crowd gleefully cheers the momentum and as tops are processes anyone voicing contrarian reservations looks to be wrong while the bubble proceeds.

I’m a big boy I can handle it. I was faced with the same issue late last year into Q1 this year as they kept chasing stocks into the high heavens before the 35% crash. Oh but it was Covid, nobody could’ve seen this coming. Nonsense. Covid was the trigger but the technical and excess were long building and now we’re in such phase again, except this one may be worse.

I know, we live in the age where trillions are tossed around candy by centra banks and governments and everybody’s eyes just glaze over as the numbers defy context and comprehension.

But let me throw a bit of reality into the mix and it’s absolutely mind boggling.

5 stocks have just added over half a trillion in market cap in just 6 days. Six days. Ponder that:

And they’re even higher on the open today.

I ran the numbers:

5 stocks now have a combined market cap over $6.5 trillion.

These very same stocks have added over $1.6 trillion in market cap in 2020:

That would be a feat during any bull market during times of great growth, but in a historical recession?

So some of these stocks grabbed some market share during the shutdown, but don’t tell me $AAPL sold more phones during this.

It gets worse. Since 2019 these stocks have added over $3.2 trillion in market cap:

Now, if you can convince yourself to believe that these stocks have earnings growth stories to support market cap expansions anywhere near these figures I suppose you can convince yourself to believe anything.

During bubbles people will convince themselves of anything. And this is nothing new. After all people convinced themselves that tech’s valuations versus the rest of the economy were justified before.

How did that work out?

Folks, we’re witnessing the greatest market cap expansion in human history making the year 2000 look like child’s play. The combination of insane liquidity thrown at markets, the mechanics of automatic ETF allocations, retail and FOMO thirsty funds chasing these few stocks all look to contribute to the greatest market cap bubble in history.

And we continue to stare at the mother of all rising wedges:

The most vertical, most narrowest one way wedge I can recall seeing.

And they keep piling into this valuation expansion like their lives depended on it:

$AAPL has a PEG ratio of 2, $AMZN a PEG ratio of 3 with a combined market cap over $3.2 trillion.

Bubbles will run until they burn themselves out. You know my views on the bifurcation and the bubble (See also DOW Gargoyle and the Bubble).

I’ll let the market cap expansion figures speak for themselves. I consider them to be a massive warning of un-sustainability.  Others are free to disagree. That’s what makes markets.


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Categories: Market Analysis

36 replies »

  1. Dave Portnoy buying SAVE below $16.
    Sven, you’ve received your long awaited correction but only for a day. Retail, which now makes up 25% of the trading community, says so.

  2. According to your stats, Google has some catching up to do. You’ve just pointed out another potential opportunity for buying the dip in Google, just like you’re ‘tethering bottom support line’ several articles ago which turned out to be a buy the dip opportunity too.

  3. Just looking at that mother of all rising wedges makes me feel like they are going to throw another few trillion into the works to see if they can cause a parabolic break-out that veers to the left- that’s right, they going to cause time to warp…

  4. Now it’s only matter of finding out the next trigger. Any suggestions?

    mid jul earnings season
    jul 30 AAPL earnings
    nov 2 US elections

    or

    the usual M.E. war between now and dec

    Ah, and let’s don’t forget a possible Trump indictment for… well, they could invent almost anything if Biden’s basement strategy stops working…

    • It is mind boggling and it could be even more mind boggling how much longer it continues. But it will pop, all bubbles do and it will be epically historic.

  5. Well, there’s madness and there’s markets. Market sheeple seem to have been a bit scattish this week, briefly looked like they might bolt for the exit earlier today. Unless they get some kind of calming fix they could at any time. Been some fairly aggressive selling of the closing ramp lately, it might be a short lived comeback.

    I’ve spent a fair few years looking after various animals. Pigs I understand well and they are lovely animals, very intelligent and friendly (mostly). Chickens and ducks are OK, can have meaningful communication with them but ducks are by far the more stupid. Horses I don’t know well but they seem really nice. Cattle are a bit weird (like a japanese supermarket) but can be entertaining. Sheep I’ve never quite worked out, but maybe I tried to think too much in their case?

      • Well slap my face with a wet haddock! TSLA just shy of $1500 as I type, up over 7% this Friday and a new high. There’s madness……. and then there’s TSLA bulls.

  6. Three things seem to have irked the market today:

    Trump lost Supreme Court tax and bank info release lawsuit.
    Biden released tax and economic policy today, confirming higher taxes for corps and duh rich.
    Next stimulus looks to be below $1 Trillion, with a much reduced $40,000 income cap to qualify for “QE for the people”, and the $600/week fed unemployment bonus is a grave risk.

    That said, the Fed may step in at any second and pump the market higher so beware as only perception and Fed liquidity matter as of this moment. And of note, if you think about it, the Fed is already buying stocks. For example, AAPL only sells bonds to buy back their stock, as they have hundreds of billions of cash laying around. And the Fed has been directly buying APPL bonds, thus feeding the mechanism that drives APPL stock price higher via stock buy-backs. If only we could all incorporate our own lives, and have the fed buy our own bonds so we could pump our own stock rpice to heaven, yes we could all be billionaires too. Sure it is a scheme of epic proportions, yet few seem to understand or care, and if they do, they have no leverage to force a change.

    So Sven, until the Fed gets banned from buying anything and everything at any cost, not much will change as reality does not matter, only “Fed lives matter”. And right now, the fed seems to have infinite lives…

  7. “ The climax intraday reversal close” is preceded by successive relentless irrational “ Unfilled Gaps “prices on bullish news …look toward the afternoon sessions..it’s inevitable ..then you aggressively look for entry point and sell aggressively!!!! futures …Nasdaq 100 💯 sell stops 🛑 are definitely under these prices …or buy put options …” what wiseman do early fools do late “ excellent technical observation…my profound appreciation !! Monsieur Sven

  8. Another good analysis Sven with only one point to make in regard:
    Bubbles ‘burst’. This rise is backed by the guarantee of the FED and will NOT ‘burst’, hence this is not a bubble. Staying the trend until it changes is the right way to make money, and it’s going great for many.

    • Bubbles do burst. To say that this is not a bubble because of “Fed guarantee” is flawed.
      The Fed has certainly influenced the trend, but the Fed is not in a position to guarantee anything. The Fed does not have absolute control over massive selling. That’s why Feb 19th to Mar 23rd happened.
      In this life, and in these markets, there are no guarantees.
      Good luck with “staying the trend until it changes”.
      The trend can change suddenly and the market won’t wait for bulls to exit at their leisure.

    • The Fed has withdrawn $248 billion in liquidity in the past 3 weeks. I think even they might be getting nervous. Party on Mark.

  9. Ruh Roh…..”End of “Era of Shareholder Capitalism”, per CNBC tonight:

    Presumptive Democratic nominee Joe Biden, laying out his plans for an economic recovery Thursday, said President Donald Trump is too focused on the stock market during the coronavirus pandemic.

    The former vice president, speaking at an event in Pennsylvania, said he wanted to end the “era of shareholder capitalism.”

    “Throughout this crisis, Donald Trump has been almost singularly focused on the stock market, the Dow and Nasdaq. Not you. Not your families,” Biden said. “If I am fortunate enough to be elected president, I’ll be laser-focused on working families, the middle-class families I came from here in Scranton. Not the wealthy investor class. They don’t need me.”

    Among the policies Biden described Thursday is a tax hike for corporations. His plans call for a 28% corporate tax rate, well above the 21% set by Trump’s 2017 tax cuts but still below where the top rate was previously.

  10. “Now, if you can convince yourself to believe that these stocks have earnings growth stories to support market cap expansions anywhere near these figures I suppose you can convince yourself to believe anything.”

    If you could get 5% on the ten yr US treasury, the valuations of the FANGS would be more reasonable. But the situation is that big money has no where to go. The only rule of stock valuations is the rule of the alternatives. And given that the Fed is supporting these valuations, I’d say there is every indication that big money will hold these stocks, until such time that a massive dollar devaluation takes place.

    I’ve never eaten rat, but I’m sure if I was hungry enough, I’d eat it to survive.

    But you are right to point out the absurdity of the whole market feasting joyously on raw rat.

    • This may be useful:
      https://bertc.com/subfive/recipes/cookingrats.htm

      I’ve not eaten rat (yet) but I think I’ve eaten cat in 1974, Istanbul, Turkey. The menu said chicken but the taste was very wrong (I wouldn’t say pleasant) and the anatomy was extremely like the hoards of cats that were roaming around.

      Hey Sven, there’s madness, there’s markets and then there’s cattle 😉

  11. How do the markets blow-up in spectacular fashion………………slowly at first…………then ALL OF A SUDDEN! Were almost there Sven. Another immediate crash coming shortly followed by about 2 to 3 years of a slow grinding down of prices and values. It will take years to find a bottom and decades to recover.

  12. The art of war teaches us to rely not on the likelihood of the enemy’s not coming, but on our own readiness to receive him; not on the chance of his not attacking, but rather on the fact that we have made our position unassailable.
    Sun Tzu

    Thanks Sven for all your insights.

    Your postings provide me with the foundation to develop a more structured and coherent view of the economic and financial environment.

  13. Elon made $6 billion today, and is now the 7th richest person on Earth. It was clever that “someone” bought $731,000 OTM July 17 2020 TSLA calls today, as it seemed to spoof the algos to buy, buy, buy… and then the Robinhooders panic bid around those OTM call purchases even further. Spend a measly $731,000, spike TSLA $25 billion. Now that is clever! With all the brightest minds now working on Wall Steet, it seems logical that more creative schemes will make some Wall Street geniues immeasurably wealthy. How else can one “make” $6 billion dollars in a single day? Musk or Bezos…which one will be America’s trillionaire first??? And then of course President Bezos or President Musk, as we all know the super wealthy best understand the struggles of the bottom 99.9999%ers (cue sarcasm)…

  14. Excellent summary. Take a trend, whose premise is wrong, and bet against it. The current trend is beyond wrong; it’s criminal.

  15. We’re seeing consistent weakness into and after the closing ramp, if the overnight ramp fails there’s a pre-open ramp coinciding with the european open. Manipulation only works so far, no further. Profits seem to have been / are being taken on FANGMAN and other tech. The smart money has probably already largely exited. I hope you’re ready for what happens next.

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