When there is maximum confusion, it's often something hidden at work.
Right now, for example, we have a sell-off that used to be of immense proportions, but given the run-up, simply isn't as significant. I can't believe a 5%-6% decline isn't significant, but after this run, the Nasdaq is still up 28% and the S&P, 7%. I think it is realistic to expect a bigger drop in the Nasdaq, simply because the last 10% gain was made pretty much by an insane level of undisciplined buying.
In fact, we have actually been waiting for a sell-off to begin, having made enough sales on the way up that we don't need to take action, even as we took small sales Thursday, ahead of when I come back on Monday and will be frozen on pretty much everything.
Even down where we sold, we were up week-over-week on most, which tells you all you need to know. You never catch the top.
So what do I mean by hidden reasons for selling in the confusion?
First, oil is down, which means interest rates go lower. That's been the linkage forever and, silly as it is, because it doesn't empirically correlate, as everyone knows, except the algos. When interest rates go down, you are supposed to buy tech. Second, you have two stocks that can set things off: PagerDuty (PD) , which is a call management company, and Ciena (CIEN) , which is telecom. Those are both pretty integral to the tech rally, but I don't even know if they are known by the newbies.
Third, you finally have real supply of the most loved stock in the universe, the flagship name for the newbies: Tesla (TSLA) .
Fourth, you have a re-opening of America trade going on with the cruise ships: Royal (RCL) , Norwegian (NCLH) and Carnival (CCL) . Of course, that is directly contradictory to the bonds. But it is also possible that we have reached a tipping point, in which there are enough vaccines in trial that one sticks. I, in particular, like the Glaxo (GSK) -Sanofi (SNY) trial that just started because they know vaccines, they know how to create boosters, it is in their wheelhouse.
So what does it all say?
I think the answer is in none of those. I think the answer is in margin selling, and we are in the thick of it. The newbies only know that stocks go up. I suspect that many are thinly capitalized.
You are always looking for signs of a top. I think that Wednesday, when Barstool's Davey Day Trade put up a picture of the new millionaires that may have been it. Of course, I counseled taking something off the table, but that is forbidden in the newbie world
Can it end soon? Remember that September is a terrible month. Remember that it falls faster on the way down than when it goes up.
And it doesn't end yet, given that the Volatility Index has been up at the same time the market goes up, something that Mark Sebastian has told is a very bad sign for the bulls.
I say if you haven't made sales yet, you still can. I almost never say that. But remember, we are up so much from a few weeks ago you may not even notice the size of what I expect to be the biggest rout of the year.
The newbies cannot stem the decline and the "suits," as David Portnoy calls them, are so far away from where they would buy -- so many stocks trading at times sales when they would be expensive at times earnings, that you just can sit back and watch it fall to better levels.
