The Nasdaq and Nasdaq 100 are the only major indexes to be at all-time highs, but it has been 20 years since there has been "bubbly" action like we are seeing Monday.
It isn't just the gain in the indexes that are sizable or the lack of any pullbacks. It isn't even the momentum in some favorites like Tesla (TSLA) or Beyond Meat (BYND) . It is the speculative trading in many stocks that are totally unjustified on a fundamental basis. Not only are stock doubling in a single day like Nikola (NKLA) , but stocks that are bankrupt like Hertz (HTZ) or that needed substantial bailouts like the airlines are flying as traders chase the price action.
When the bubble occurred back in 2000, the economy was good and the modernization of the internet was truly a historic change. There is nothing much like that occurring right now. This is all about liquidity and a crop of new traders that have discovered trading while lock-up during the coronavirus crisis.
Market players are already struggling to reconcile this sustained market strength during the worst economic crisis since the Great Depression. The wild speculation adds another element that gives the market the feel that it is totally disconnected from economic reality.
As a trader, I say the best course of action is to take what the market gives you, but not everyone is inclined to engage in this highly aggressive action. There is no doubt some of it will end badly, but there is no way to measure how long it might last. Right now there is a wave of liquidity looking for a place to go and it is going into some very bad stocks. There are over 133,000 accounts at Robin Hood that now own Hertz, which is likely a worthless stock as bankruptcy takes place.
The most important thing right now is to try to avoid the inclination to short into this strength. There is simply no way to know how much longer it can persist. It can be a very enticing trade because it is so obvious that a reversal will eventually occur but it is the timing that is the problem and if you are too aggressive the chances of being stopped out are substantial.
This is one of the most unusual markets that we are likely to see. Rather than fight it, appreciate it for what it is, and focus on finding opportunities.
Have a good evening. I'll see you tomorrow.