Tuesday, February 2, 2021

The Last Pump And Dump

Today's gamblers are right about one thing - this is not a bubble, this is a super bubble...

In retrospect this era will be viewed as the biggest pump and dump in history. Nowadays, market manipulation is not just accepted, it's expected. After all, central banks do it all the time. The S&P 500 couldn't have reached this level without them.

Record IPO and SPAC issuance on Wall Street
Record short squeeze pump and dump schemes
Record crypto bubble
Vaccine biotech bubble
Cloud internet/Virtual economy bubble

In Elliott Wave terms, it's no coincidence these bubbles are all taking place at the same time. Because they are all part of the same bubble in social mood. Speculative fever is merely rotating from one asset class to another, leaving a trail of imploded bagholders in their wake. The SEC is too busy scrutinizing trading restrictions to realize the market is already falling apart in real-time. Every day for the past week all of the retail brokerages have been experiencing intermittent outages particularly in the morning. Why? Because of the ludicrous trading volumes.

The media coverage of these various pump and dump schemes invariably focuses on the few winners while assiduously ignoring the multitudes of losers. A bias that helps to fuel the "FOMO" fear of missing out on a pump and dump. The number one rationalization I hear all the time is that yes this is a bubble, but similar to the Dotcom bubble this can go on for years. The people advancing this argument were either not trading during that era, or they have amnesia. Yes, the Dotcom bubble took place over a period of years, however, widespread retail participation by neophyte investors only took place AT THE END of the bubble. At the beginning, most people were skeptical of buying revenueless internet stocks having no real business model. By the end they had contagious FOMO and were valuing companies based upon "eyeballs" aka. monthly active users of free web sites. I remember it well.

This particular everything bubble really took off over a year ago in October 2019 when retail brokers all reduced their commissions to zero. From that point forward, the number of new brokerage accounts accelerated. Then when the pandemic hit, new brokerage accounts exploded. However, this past week new accounts have once again reached new records particularly on Robinhood, which ironically has been experiencing major outages and has levied trading restrictions:

"Robinhood led the industry in app downloads last week by a wide margin, according to JMP Securities’ analysis using SimilarWeb app data. The free stock trading pioneer had more than 600,000 people download its app on Friday, compared with 140,000 on its best day in March during the Covid pandemic-fueled market rout last year."

Robinhood added more accounts this past Friday than all of the other major brokerages added during the entire month of January. Yes, you read that right:

"E-trade had its app downloaded nearly 220,000 times last month, according to SimilarWeb data. TD Ameritrade nabbed nearly 370,000 downloads and Charles Schwab had more than 75,000 downloads. Fidelity had its app downloaded 340,000 times"

Among the various bubbles, Bitcoin peaked back in early January just after Scott Minerd of Guggenheim investments gave it a $400,000 price target. From the January 7th high at $42k, Bitcoin fell -30% and bounced off the 50 day moving average. It appears to be a spent bubble deja vu of late 2017 when Jimmy Altucher predicted Bitcoin would reach $1 million by 2020.


Next comes the short squeeze bubble masquerading as populist uprising. What is touted as the masses occupying Wall Street is in fact merely a late cycle short squeeze deja vu of 2008. Gamblers are bidding up heavily shorted left for dead cyclicals under their belief in a fictional recovery. The more the stocks go up, the more they are deluded by their own capital misallocation.

This short squeeze will contribute to the extreme velocity of impending decline. 

Here we see via Gamestop what happens to EVERY short squeeze stock once the shorts have covered. 

Wholesale collapse. It's not just shorts who got burned, it's latecomer longs who got demolished as well.

“With volumes in all the hot stocks collapsing, silver attack met by margin, Robinhood having to seek fresh collateral at a rampant speed, the signals that the retail mania could unravel rapidly are aligning,”

The heavily shorted retail ETF peaked last week and is down 25% this week:

This week the Reddit mob attempted to organize a silver pump and dump, but it imploded after only one day.

Not a good sign for the number of fools left to follow. 

Arguably the biggest bubble of 2020 was the green energy, solar, electric vehicle craze. This bubble kicked off one year ago with the widespread divestment from fossil fuel energy. Then, when Biden got elected this bubble went parabolic.

Looking at the largest Alt-energy stock by market cap, we could make the case that this EV bubble is also running out of gas.

Pun intended.

Then of course there is the Virtual Economy/Technology bubble. This bubble which includes Cloud internets, semiconductors, software stocks, MAGA cap stocks etc. has been extremely persistent. Likely because in terms of total market cap it's the most ubiquitously owned bubble in the S&P 500.

Like every other bubble, it's merely a bubble in asset inflow momentum.

When this bubble explodes, it will be spectacular.