A Very Bad day for Bubble Investments
Crashes do not come from particular triggers.. and they tend to be unpredictable, as testified by the 1987 crash, the February 2020 crash or the bursting of the .dotcom bubble in 2000.
Crashes come when the balance of buyers and sellers reverses and a lot of holders of bubbly assets suddenly realise that they are not going to go higher… They then sell indiscriminately in a vacuum because no one is willing to pay these elevated prices.
We are quickly coming to this stage and yesterday was a very bad day for US tech stocks, Tesla, Bitcoins and Gamestop, all the icons of the massive speculative bubble engineered by the FED and by a new generation of inexperienced investors….
Technical signals like yesterday sharp fall in these speculative investments CANNOT BE IGNORED…
They are the advanced warning signal that the balance of buying and selling has turned and that it is only a matter of time before panic selling takes hold…
So let’s review what happened yesterday leading the Nasdaq to fall 2% in a relentless fall during the day closing at the low and led by all the major tech stocks…
Interestingly, there was no real trigger for the fall…
Bond yields have stabilised, in fact they have probably peaked,
Elon Musk and Cathy Wood are acting like casino gamblers that have lost so much money that they need to go all-in. They are trying to talk their book again, with Musk tweeting that Tesla will accept payments in Bitcoins and Cathy Wood re-iterating her 3’000 target on Tesla,
And the Governor of the Bank of Japan, worried by the deteriorating momentum of the Japanese stock market confirmed that the BOJ will step-up its buying of equity ETFs.
Nevertheless, bubbly investments fell sharply, leading to very crucial technical situations
Yesterday, the Nasdaq Composite Index broke down again below the uptrend in place since March 2020, after having failed to break to the upside and hold above its ST moving average.
This breakout of a triangle after a previous test to the downside confirms that the weight fo sellers has definitely taken the upper hand for the near future, with a clear lower top in place.
The weekly chart confirms this analysis with a major change of trend characterised by a break of the uptrend and a significant top just confirmed by a lower top.
The Monthly chart is scary. Never in the entire history of the Nasdaq has the index been so overbought and overextended. The sharp declines of 2018 and 2020 are warning signs that when the top is confirmed and selling pressure takes hod, the downside will be both significant and extremely fast.
Wow ! Really bad news for the icon of a generation. Despite many speculators and Cathy Wood having bought during the March melt down, the stock failed to build upside momentum and the punters are now facing the unpleasant situation of having added to their positions and still losing money on this buy-on-the-dip.
As we predicted, real sellers are now coming in and Elon Musk’s Tweet yesterday announcing that the company would take bitcoins as payments, after its 1.5 Billion investment in the crypto is making real investors and analysts worry considerably. A 50 % fall in Bitcoins would trigger a 750 million US dollar loss for the company….
Technically, what we have here is a true rollover that points towards a re-test of the March low at 550. Such an occurrence will trigger even more selling pressure…
The Weekly chart confirms several things. First a major top was recorded and confirmed in January at 850, prescient when Elon Musk’s brother sold some stock. Two, a 25 % fall from its peak, TESLA shares already ARE in bear market territory. Three, a break of the 600 level will trigger the second leg of the bear market with a target at 400.
What the long term chart shows is that the only two intelligent analysts on TESLA are those from Morgan Stanley and from GLJ Securities with price targets at respectively 150 and 67.
These analysts are far from stupid, they know their stuff, they don’t work under the pressure of the market like the other analysts that had targets at 100 to 200 in December 2019 but raised them with the stock rise to 800.
Their targets are confirmed by technical analysis and the ultimate fair value for the company will be in those ranges when the dust settles.
Based on expected net profits of US$ 6.5 Billion and earnings per share of US $ 5.78 in 2022, paying Tesla 20x 2022 earnings like DAIMLER or Volkswagen will mean a price of US$ 120.
After their spectacular rise of the past six months, Bitcoins have just broken their uptrend after marking a clear top, followed by a lower top and having lost momentum after the February peak. It is only a matter of days before it breaks its ST moving average for the first time since the beginning of the bull market.
This is a good time to buy a high-end Tesla with just 2 Bitcoins, Mr. Musk !
The long term chart gives a measure of the downside… As was the case with both the 2017 peak and the 2019 peak, the crypto will end up settling around its long term moving average at 10’550.
There again, the balance of Buyers and Sellers is turning and there will be no one to buy Bitcoins at these levels, as there is no rationale to own bitcoins.
Grab your pants…
Amazing Gamestop… The Poster child of Reddit / RobinHood investing is leaving their fans biting the dust. The stock fell like a stone yesterday as they are finally realising that “Hold till you die” may well mean that you will actually die before you make money.
In the matter of three months, the video retailer went form 5 to 500, fell to 37, went back to 350 and is now back to 120, well en route towards the low 5s again….
An entire generation of new investors are getting badly burnt… and will never forget what an investment bubble is…
Those coincident changes in sentiment and balance of buyers and sellers are not an accident. They are the surest sign that a sharp liquidation move is in the making.
The best way for investors to hedge themselves is the EXANE Index certificate on our US SHORT TECH PORTFOLIO, the details of which can be found by clicking on the image below.
WITH ITS 2x LEVERAGE, THE CERTIFICATE GIVES INVESTORS A CONVENIENT WAY TO SHORT THIS BASKET OF STOCKS WHILE DELIVERING TWICE THEIR PERFORMANCE ON THE DOWNSIDE.
TO INVEST IN THE CERTIFICATE, JUST USE THE ISIN CODE CH0590403132
WE SHOW BELOW THE CHARTS OF THE COMPONENTS OF THIS PORTFOLIO AND THEIR POTENTIAL DOWNSIDE.
Advanced Micro Devices
Ouch ! A death cross on the ST and MT moving averages and a break below the long term average after a failed first attempt is a really negative sign for the super duoer semi-conductor stock of the past ten years.
The strong support at 73 is about to give way, pointing to 55 as the next target on the downside.
The Weekly chart of AMD confirms that the balance of Buyers and sellers has clearly shifted, with a clear pattern of constant selling. After a failed attempt at a new all-time high in January, the stock has already lost 25 % in bear market territory and testing its ST Weekly Moving average.
The next target is at 56.
The long term chart of AMD is probably the ugliest of all !!!! Watch what happened in 2007 and where we are today…. The ultimate downside on AMD, a very cyclical business, is probably at 15.
Oops .., very bad sign for Apple Inc yesterday. After weeks of rebounding on the upward trend of its consolidation triangle, it failed to break the downward trend of the triangle and is now dangerously testing the 120 level, while staying stubbornly capped by both ST and MT moving averages.
It is now a matter of days before it breaks out from the triangle to the downside with an initial target at 90 $
First top, second top with loss of momentum, break of the two uptrends are all signs telling us that the bull market in Apple shares is OVER. The stock is now trading below its two peaks and has entered a bear market. The next targets ar 109 and the real support for a rebound will be at 81.
How about $ 53 as the real value of the company based on its long term trend in business growth and earning ? Based on 2022 earnings per share of 4.64x that would represent paying 11.5 x earnings for a company that is only expected to delver 4.8 % earnings growth in that year….
Another nasty reversal yesterday and failed break from the consolidation pattern of the past two months. The stock has lost upward momentum since June and the balance between buyers and sellers is tilting in favour of sellers.
In fact the stock is struggling to stay above its moving averages and it is just a matter of time before MSFT breaks down to 225 and then to 216.
The weekly chart is still constructive but the upward momentum has been clearly broken.
216 is a key level under which the next target is 180
Okay ! Where to now ? 2020 was a blip, but a 40 % blip…. Are we about to have the next blip? The ultimate target of the bear market, when it starts is 89
A very nasty reversal yesterday as Facebook was challenging its previous all-time high at 300.
This would mark a significant double top if confirmed and points to a re-test of the three moving averages at 260.
As the chart shows, the upward momentum is clearly fading since September and the balance of buyers and sellers is clearly titling towards more sellers..
The weekly chart shows that the uptrend in place since March 2020 is clearly broken and that the sideway consolidation is ticking downwards.
The long term chart shows a clear loss of momentum of Facebook and yesterday brought back the stock within its consolidation triangle, negating the break out to the upside.
A break below 250 would send the stock to 170 as an initial target.
Weak, weak, weak upward momentum. The stock is failing to break to the upside and is marking a succession of lower highs. A test of the lower boundary and of the ST Moving Average level at 1993 is in the making, as well as a filling of the gap opened in February.
A break of 1871 will confirm the beginning of the bear market.
Google’s vertical acceleration since the beginning of the year has lost momentum…
The long term chart is a textbook example of a trend ending vertical acceleration in a bull market and the fact that the last buyers were buying on no selling volume. Everybody is sitting on unrealised profits and a break down will unleash a fall towards 1240
Not nice ! Amazon fails again at breaking above its ST and MT Moving averages that are delivering a death cross and it closed back below its long term Moving Average.
The consolidation triangle in place since June was broken and it is only a matter of time before the online retailing giant breaks below the crucial 3’000 support level.
As we predicted, AMZN long-term uptrend is over and the horizontal consolidation is marking a succession of higher lows. Watch the 3’000 level with a next target at 1950.
The entire bull market in Amazon is over. When Amazon breaks the 3000 level, 2000 will be the next stop and the ultimate target of the bear market will be around 1150, valuing the company at 14x its 2022 net profits.
Yesterday’s reversal amounted to yet another failed break of the triangle, and failed to break above its ST Moving Average. A failed break to a new all-time high at 570 create a massive resistance now at these levels and a clear change of balance between buyers and sellers since June is visible in the chart.
Watch the coming break below the LT Moving Average at 506.
In fact the crucial support level is 510 as a break of this level to the downside leads to a fall towards 360.
March 2020 was a simple blip but the current loss of momentum to the upside is worrying at these elevated levels, with multiple tops and a failed break. The break below 506 will send the stock down to 300 and then 200 when the bear market will be over.
DISCLAIMER Mechelany Advisors FZ-LLC or www.mechelanyadvisors.com, is not a registered investment advisor, nor a capital management firm or broker-dealer and does not purport to tell or suggest which securities customers should buy or sell for themselves. Mechelany Advisors FZ-LLC operates as a private advisory and research company where we provide consulting services to pension funds, investments funds and private clients. Our analyses and conclusions are ours and they only clarify and highlight the investment rationale behind our own investment decisions. The analysts and employees or affiliates of Company may - and usually do - hold positions in the stocks or industries discussed here. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. You understand and acknowledge that there is a very high degree of risk involved in trading securities. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns. The indicators, strategies, columns, articles and all other features of Company’s products are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company’s website are for educational purposes only. Such examples are not solicitations of any order to buy or sell securities, commodities, investment products or engage into any kind of trading activities. Accordingly, you should not rely solely on the Information provided in making any investment decision. Rather, you should use the Information provided only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment. By navigating on our website or remaining on our subscription lists, you accept our terms and conditions and discharge us irrevocably form all responsibility.