Thursday, February 18, 2021

Dangerously Close To Explosion

This week we learned that Gamestop almost broke Disney markets. How will we explain this to the grandchildren. In 2008 we had a global credit crisis and in 2021 we had a Reddit-organized pump and dump scheme carried out on a candified iPhone app called "Robinhood", designed to entice all juvenile order flow to the world's wealthiest hedge fund. You can't make this shit up...

Tomorrow is the one year anniversary of the pre-COVID market top. What has changed since the pandemic began? MAXIMUM RISK TAKING and the gamification of markets. Unfortunately, the system can't handle this level of gambling...

“We have come dangerously close to the collapse of the entire system and the public seems to be completely unaware of that, including Congress and the regulators”

Imagine one year on from the worst market meltdown since 2009, and the greatest stress markets have seen during the entire pandemic was caused by a pump and dump scheme on a stock that started 2021 at $1 billion in market cap. 

What changed during the past year? The rush of newbies into the market, the mass gamification of trading, and of course rampant pump and dump schemes.

All of these factors have continued to propel Nasdaq volume to new all time highs this week. As I've said several times, volume usually peaks on selloffs and recedes on rallies. So it's extremely ominous to see astronomical volume at an all time high. It does not portend well for a global RISK OFF event which is long overdue:

Of course what happened with Gamestop was merely a warning of what is about to take place. That particular short squeeze merely led to the type of epic volume that one would normally expect during a global selloff. If the machines almost crashed due to one tiny stock, imagine what happens when Tesla, Amazon, Apple, and Microsoft suddenly go bidless.

Which is where this all gets interesting, because one of the consequences of this late cycle headfake burst of inflation is that it has caused a massive rotation away from Tech/deflation trades.

For example the most popular Tech ETF, the Ark Innovation Fund has seen massive distribution (down volume) over the past week:

Chinese New Year ended yesterday and on the first day back, Chinese stocks got monkey hammered deja vu of last year:

Looking at this chart of new S&P 500 highs, we see several red flags. First and foremost the fact that new highs have been shrinking for three years now. Also we see that this year new highs peaked a month ago in January. It's the same pattern we saw last year - a peak in January and a lower peak in February during the terminal melt-up phase:

This is an interesting chart - Virgin Galactic went parabolic last year and again this year - top ticking the end of the rally. A propos of all of the virgin space cadets gambling right now, under the supervision of Dave Portnoy whose claim to fame is running an online sports betting operation. A skill that transferred seamlessly to the world of pump and dumps - someone always has to lose...

In summary, it would be extremely ironic and yet fitting if this Alice in Wonderland stock market rally exploded one year later from the pre-pandemic top. Last year they claimed somewhat dubiously over a month into the pandemic, that no one realized the global pandemic would spread to the rest of the world.

This year, we already know what they will say - exactly what they've been brainwashed to believe:

It was the beginning of a new cycle