Business & Investment

Stock enthusiasts like GameStop, soaring option activity suggests a market recession is coming

Patrick T. Fallon | Bloomberg | Getty Images

Speculative trading of some vigorous stocks and options could show a short-term top, according to investors, but bullish, stimulated by economic improvements and a brief federal outlook. Is likely to continue for some time.

Julian Emmanuel, head of BTIG’s equity and derivatives strategy, said the surge in options and foam trading for some high-end stocks is very similar to the period leading up to the burst of the tech bubble in 2000. Said. The market behaves in the same way that the S & P 500 could reach a high of 5,047 before the bull market ends, but he does not anticipate such a surge.

Most strategists expect the S & P 500 to finish higher than this year, CNBC Strategist Survey At a median of 4,100. However, many expect at least one pullback at the beginning of the year.The· S & P 500 It was 3,840, which was slightly lower on the day of noon.

“We haven’t seen any signs yet, and we haven’t seen any concrete signs of a medium-term trading top, but this type of volatility will always pull back 10% to 15%, as it did in 1999-2000. I believe we can get it. “Emanuel said.” At present, from the speculative level, we can conclude that the typical retail investor is as bullish as we’ve seen over 20 years. Yes. In the current valuation, it’s a recipe, albeit potentially rapid. It’s temporarily retreated to the market. “

Bank of America’s global strategists also don’t think the market bubble will burst soon. “Even the most bubbly stock index lags far behind the performance of previous bubbles. NASDAQ has risen 96% over the last three years,” they write. “It rose 201% before its peak in the early 2000s (and then dropped 72%). S & P rose 44% from 98% in the late 1990s. MSCI WorldexUS is now flat for three years, so the bubble is No. There. “

Short squeeze frenzy

Trading under some vigorous names on Monday sent a flash warning to some traders. GameStopThe child of the recent frenzy poster soared to a high of $ 159.18 and fell below $ 70 before a violent reversal. The company has a high short position and is one of the many stocks covered.

“In the last few days, they’re trying to make the final squeeze with the shortest name,” said Scott Redler, a partner at GameStop is a popular name on Reddit’s Wall Street message board.

AMC Another stock that soared 25% at noon. Another short, Bed bath and beyond After opening at $ 34.84, it was very volatile, hitting a high of $ 47.73. In the afternoon trading, it returned at $ 32.62.Stocks of other retailers were wiped out by Monday’s frenzy Nordstrom After a surge of more than 10%, there was little change on the day.

“There’s certainly an overkill right now, and some experts are worried,” said Redler, who focuses on short-term technical. “You don’t want to fight excessive, but being a little more cautious is nothing wrong. Why are you aggressive with something like this? Apple, When heading for profit on Wednesday. “

Mr Redler said he became more cautious and that Monday’s violent trading brought a level of horror to the market for the first time in a while.

Stacking up to call options

Enthusiastic trading occurs when small investors contribute far more of their daily trading volume on the stock market. This is especially true since the pandemic occurred. Free internet trading makes your investment easier to access. At the same time, investors are accumulating call options at record paces by personal name, and their actions have been rewarded as they urge dealers to buy stock.

“This is a social media network effect that amplifies the kind seen in 1999 and 2000 in that day traders can move certain stocks higher,” Emmanuel said. “Currently, it is further amplified by the fact that risks and rewards are limited. They are doing so under the guise of a short-term option that is used very often in late summer. At that time, it overshoots. Technology stocks and value stocks. Currently, they are found not only in the same large-capitalization tech stocks, but also in secondary and tertiary types of stocks. “

Emmanuel said the bursting of the bubble in 2000 had a disastrous impact on retail investors, fearing many would return to the market for a long time, and some were still too conservative. “I don’t want to call this the complete mania stage, but based on what I’ve seen in the last few days, if that momentum continues, there are all the signs that it’s what you’re going to have.” He said.

Emmanuel said investors were once again concerned about the double-bottom recession in the second quarter if the pandemic could once again become a major driver of the market, vaccine deployments did not improve and the virus worsened. He said there were concerns that he had to face.

The pandemic deal was revealed on Monday, with investors dumping travel stocks on airlines, casinos, cruise ships and more. Stay-at-home ban Tech is higher, and names like Facebook, Apple, and Amazon have all increased slightly.

Emmanuel said the upward trend does not seem to be over, even if there is a pullback. If the S & P exceeds 5,000, it will be traded in multiples of the current 23 to 30. The technology bubble and price-earnings ratio of 1929 are not unprecedented. At about 33 years old, he said.

“We’re back in 1999, and we don’t know what part of the year,” said Peter Bookbar, chief investment officer of the Brigley Advisory Group.

Stock enthusiasts like GameStop, soaring option activity suggests a market recession is coming Stock enthusiasts like GameStop, soaring option activity suggests a market recession is coming

Back to top button