History rhymes, but this time Robinhood (HOOD) stole from both the rich and the poor. 'The Robinhood Market Top' may be in and a -5% to -10% market correction seems to be a reasonable expectation now.
The IPO reminds us of the previous April 2021 direct listing of Coinbase (COIN) (top in cryptocurrency prices) and the LaBranche IPO (top in the markets) in July 1999
And, I view the Amazon (AMZN) miss as very important to the markets.
""You know somethin', Robin. I was just wonderin', are we good guys or bad guys? You know, I mean, uh? Our robbin' the rich to feed the poor."
- Little John
I see the Robinhood Markets IPO as possibly marking a highwater mark for retail trading as well as potentially representing a 2021 top for the entire market - much like:
* The Coinbase Global direct listing marked the cyclical peak in the price of digital currencies back in mid-April, 2021 (when Bitcoin traded at about $61,500)
* The less than memorable MF Global 2007 IPO (spun out of Man Financial) represented a soon to peak market and led to the single most significant downturn in trading activity and one of the largest bear markets ever.
* The second half 1999 IPO of specialist, LaBranche & Company preceded the second most significant correction in modern investing history.
According to the Business Media Everything Was Coming Up Roses for Robinhood
Once again the business media failed us and let investors down as the discussion and interviews leading up to the Robinhood Markets IPO were superficial at best, harped on the personalities of Robinhood's leadership and materially failed to discuss or analyze the flaws in Robinhood's business model (the outsized role of options trading, etc.) or in the obscene market valuation of the IPO (which was priced at $38/share).
Importantly, it is only after the fact (as the IPO fell in price from $38 to $34) this morning - that Fin TV has begun to remind investors of the risks to the Robinhood business model. As always this reminds me of Warren Buffett's famous phrase:
"Investment wisdom is always 20/20 when viewed through the rear view mirror."
The Church of What Is Happening Now Has Begun to Lose Its Congregation
For several months (See "Code Red" and "You Can't Handle the Truth") I have been cautioning about the narrowness of the market advance, the deterioration in breadth, the unhealthy dominance of FAANG plus M(SFT) (MSFT) leadership and many other technical indicators that were signaling trouble ahead.
As always I offer up one of Bob Farrell's Lessons of Investing:
"Markets are strongest when they are broad and weakest when they narrow to a handful of blue-c
Practically speaking, I am currently short three constituents of FAANG + M (which I have recently traded from the short side) - Facebook (FB) , Apple (AAPL) and Netflix (NFLX) .
Though I was not short Amazon, I issued a clear warning about the 2Q2021 prospects for the company on Wednesday morning when I wrote:
Jul 28, 2021 ' 09:35 AM EDT DOUG KASS
A Cautionary Word on Amazon
(FDX) and (UPS) fell mightily - each declining by about -$15/share - yesterday despite strong top and bottom line beats yesterday.
While the companies' business-based lines were robust - the consumer-based results were weak relative to expectations.
This could put some near term pressure on the shares of Amazon (AMZN) which were -$73/share in Tuesday's trading session.
As a direct result of these concerns I established and added to my Index shorts in (SPY) here, and (QQQ) here, and Facebook, here.
Bottom Line
When we combine the poorly placed Robinhood IPO (of course Cathie Woods' ARK Invest (ARKK) purchased over one million shares) with the startling miss and guidance markdown in Amazon (the first in over three years) -- the stage seems to be set for the correction I have been looking for.
Indeed the correction could be deeper than the garden variety 5% drop that I had previously expected.
Robinhood was an attractive and cool personality but Little John was a "bear" of a man.
(MSFT, FB, AAPL, and AMZN are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
(This commentary originally appeared on Real Money Pro on July 30. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)
