Extreme Market Continues
Did you expect the bubble to stop just because August ended? Of course, it didn’t end. This bubble is destined to be the greatest ever. Nasdaq increased 1.39% which means it’s now up 33.1% year to date and 50% in the past year. S&P 500 was up 75 basis points. This was the best first trading day in September since 2010. CNN fear and greed index rose 2 points to 77 which is extreme greed.
Goldman Sachs basket of the most shorted stocks is up 116% since March. There has been $30 billion in SPAC capital raised this quarter. 30 day average of the equity put to call ratio is the lowest since at least 2004. One issue that’s scaring investors is that the VIX is high. That’s because stocks have risen so quickly since March. VIX fell 29 basis points to 26.12. Generally, it’s in the low teens when the market is at a record high.
We are approaching election season which is causing the VIX futures market to expect a spike in volatility. Personally, I think a major crash is coming in tech stocks in the next few weeks. Investors don’t seem to care about the election, since this is an extreme tech bubble. Donald Trump’s odds have been steadily increasing in the past few weeks. History shows that polls don’t matter until we have the debates.
A spread between implied volatility and realized volatility widened. Historically, the average 21 day spread between the two is 3.5 to 4. Currently, the spread is slightly below 17. Obviously, realized volatility is very low since the stock market is on a rampage. Investors are looking for election related volatility, but it’s not happening.
Details Of Tuesday’s Bubble Action
This is the most extreme market we've ever seen, so you’re going to see crazy stats as one would expect in a complete mania. Notional trading in Tesla is larger than the entire European futures market. Zoom has risen from about the 300th largest company in America to the top 50 in 9 months.
It’s 75% the size of Cisco even though it only has 5% of the revenue Cisco has. Cloud index rose 6.11% because of Zoom as it’s up 21.8% since August 11th. Zoom and Shopify were up 40.8% and 6.4%. Shopify is up 16.7% since August 11th.
This time the small cap value stocks also rose. S&P 500 rallies almost every day. Either the cyclicals, tech, or both rally. There is always something to keep this market afloat. Russell 2000 was up 1.07%. Small cap value stocks rose 1% and the regional banks rose 10 basis points. Tuesday’s rally was driven by Wal-Mart if you can believe that.
Wal-Mart stock was up 6.3% on news that it is launching Wal-Mart+ on September 15th for $98. This isn’t actually news, but in this market a press release can sent you stock exploding. Anything is possible when valuations don’t matter. Wal-Mart’s PE ratio of just 23.5 looks absurdly low compared to the story stocks. Now that Wal-Mart has a story, why can’t it rally further? Industrials were the biggest winners as they rose 2.8%. Biggest losers were the utilities which fell 1.1%.
Tesla Triple Leveraged ETFs
Tesla stock is a money printing machine. The great thing about Tesla’s high valuation is it can raise billions without diluting shareholders by much. $5 billion would have been a big deal last year, but this year a $5 billion dollar stock sale is chump change. Tesla is selling stock at the market instead of in block amounts to institutional investors. That’s because Tesla is relying on retail traders to help spike the stock. This type of sale, which is usually done by speculative biotech firms, let’s Tesla sell at high prices because it can sell whenever it wants.
Welcome to the 2020 bubble which is trying to be greater than the late 1990s bubble. The graphic below shows there is a triple levered Tesla ETP in Europe. It’s up 620% in the past 2 months, but few are investing in it. This will blow up when the bubble ends. This isn’t popular, but the triple leveraged Nasdaq index is. It has gone up 10 fold. That type of rally will bring more people aboard. Unfortunately, they are coming at the wrong time as this bubble is nearly over.
Apple Is A Bubble Unseen Before
Apple is the biggest bubble ever. It is up 160% in the past year even though its sales are only up 5.7%. Apple now has an 8.7 price to sales multiple which is it’s highest ever. Apple was up 4% on Tuesday. Big investors want to be a part of the party so they buy a stable company like Apple instead of a profitless company like Tesla.
Problem is, a stock can be in a bubble even if it’s profitable. You also have Robinhood traders and Warren Buffett fans in the stock because Buffett himself owns it. He won’t be selling; he usually doesn’t sell because of valuation. That’s a massive mistake as Apple is about to implode later this year. It can’t keep up this pace. As you can see from the chart below, Apple is bigger than the entire consumer staples sector. Next, is the industrials sector.
Tech Bubble About To Match 2000
End goal of this bubble is for it to be the greatest of all time. It’s very close to matching the 1990s bubble. As you can see from the chart below, the tech sector is approaching a 7 times sales multiple which hasn’t happened in the past 30 years other than from 1999 to 2000. The biggest difference between then and now is the economy is in shambles.
In the late 1990s, people were betting on the internet which is one of the most revolutionary technologies in human history. Now, investors are piling into the sector because of a temporary virus which caused people to work from home and shop online. This bubble can’t last. Higher the valuations, the more competition. All the SaaS players can’t win.
