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As the saying goes, the market can stay irrational longer than you can stay solvent. And what’s happening now is that the big guys are being pushed around – David bully Goliath, if you will – by legions of day traders, using services like the Robinhood investing app to drive stocks up.
This is the theory put forward by Michael Batnick, research director at Ritholtz Wealth Management and author of the Irrelevant Investor blog. “These traders go from stock to stock. They squeeze out all the juice until there’s nothing left, then move on to the next one, ”says Batnick.
He points to this graph from JPMorgan showing the most bypassed companies in the Russell 300 RUA,
soaring higher. “I can’t prove that digital traders are the culprits, but I don’t think it takes a leap of faith of a titanic size to make the connection,” he said.
Batnick included this viral video of a young couple sharing their investing strategy on TikTok. (If you don’t click the link, the man says he buys stocks when they start going up and sells when they stop. In other words, momentum trading.)
What is different this time? The effect of networking. “It’s a huge community now, and if we’ve learned anything over the past decade it’s to be careful about bypassing networks. There are non-monetary considerations at play here, like membership. And funny. Did I mention they were having fun? Said Batnick. “I don’t think these people can keep making money forever, but this idea of it ending with their leaving is not something I see coming.”
The buzz
Supreme Court Chief Justice John Roberts will swear Joe Biden as the 46th President of the United States. The inauguration will be a minor matter due to the COVID-19 pandemic, with some 200,000 flags replacing people on the National Mall. Vice President Mike Pence will represent the outgoing administration. Biden also announced a series of executive day one actions he would take, including returning the Paris climate agreement and the World Health Organization, and stopping construction of the border wall. American-Mexican.
In one of his last acts in office, President Donald Trump pardoned 73 and commuted sentences to 70, including former councilor Stephen Bannon, Republican fundraiser Elliott Broidy and rappers Lil Wayne and Kodak Black. From the business world, Anthony Levandowski was pardoned after stealing trade secrets from tech giant Google’s GOOG,
self-driving program, as did Gregory Reyes, the former CEO of Brocade Communications, who was the first to be convicted of illegal backdating of stock options.
Any member of his family was particularly absent from Trump’s list. Joe Exotic, star of the Netflix series Tiger King, has also not been pardoned, after hiring a limo in preparation for his release from prison.
Netflix NFLX,
shares jumped 13% in pre-market trading after the streaming service reported 8.5 million new subscribers in the fourth quarter and said it would no longer be necessary to finance debt programming. Consumer products giant Procter & Gamble PG,
exceeded earnings estimates, like Morgan Stanley MS,
ends the earnings season for Wall Street banks.
Internet giant Alibaba BABA,
9988,
rose in Hong Kong trading after founder Jack Ma made his first public appearance, at a charity event, since his clash with Chinese officials over the cancellation of the initial public offering of Ant Financial.
Tesla TSLA,
rose as Oppenheimer reportedly raised its price target on the electric car maker to $ 1,036.
Short-selling research firm Citron Research is hosting a presentation on video game retailer GameStop GME,
which doubled its price in 2021. In a tweet, Citron said that GameStop buyers at this level “are addicted to this poker game.”
The steps
ES00 US equity futures contracts,
pointed to a more solid start, with the highly technological Nasdaq-100 NQ00,
contract leading the way.
The 10-year Treasury yield TMUBMUSD10Y,
was 1.10%.
Table
Ned Davis, the senior investment strategist of his namesake Ned Davis Research, says the market appears to be bubbling but the ramp up will continue. The percentage of stocks hitting new weekly highs has increased, while the percentage of stocks hitting new lows has remained low, he said. Historically, new highs peak 36.5 weeks ahead of the market. The market should look broad relative to its long-term trend. But it’s not as long as 1929 or 2000, he says.
Random readings
The pink swings on the US-Mexico border won a design award.
A 500-year-old stolen painting that could have been created by Leonardo da Vinci was returned to a museum, which was unaware that the artwork was missing in the first place.
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