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Trading Lesson: What You Can Do Amid All This Dot-Com Era Déjà Vu
10/17/2018 12:06 pm EST
Talk about déjà vu all over again! Are we fast approaching the final days of the “Uber Bubble”? An Uber valuation of $120 billion and never making a profit, writes Mike Larson Wednesday.
In January, the S&P 500 (SPX) jumped almost 6% and all the averages hit new record highs. Then a few days later, the wheels came off.
The Dow Industrials (DJI) plunged 666 points on Feb. 2, then a whopping 1,175 points on Feb. 5. After a brief bounce of several hundred points, the Dow plunged more than 1,000 points again on Feb. 8. Volatility, as measured by the CBOE Volatility Index (VIX), surged 56% the first week of that month and 68% the second.
It took a little while, but markets eventually settled down. Then, in July and August of this year, the S&P rallied slightly more than 6% and all the averages hit new record highs ... again. And a few days later the wheels came off ... again.
The Dow plunged 831 points on Oct. 10, and another 545 points on Oct. 11. The Russell 2000 Index (RUT) gave up every penny of the gains it had made since May. And the VIX jumped 44% in just one week, hitting an eight-month high.
We saw the same kind of brief bounce as we did in February – 547 points on Oct. 16, to be specific. But there were plenty of worrisome developments in the days leading up to it, including ...
- The benchmark Philadelphia Semiconductor Index (SOX) gapped down below technical support, putting it dangerously close to completing a 2000-style topping pattern.
- The Financial Select Sector SPDR Fund (XLF, Rated B-) fell to an 11-month low, putting it dangerously close to completing a 2007-style topping pattern.
- Meanwhile, the otherwise left-for-dead VanEck Vectors Gold Miners ETF (GDX, Rated C-) surged almost 10% in a month, completing an inverse head-and-shoulders bottoming pattern in the process.
So, what is the message of the markets here? Is this just garden-variety October trading? Or a sign that we’re fast approaching the final days of the “Uber Bubble”?
That’s what I’m now calling what was previously dubbed an “Everything Bubble." After all, the word “uber” means “being a superlative example of its kind or class” and “to an extreme or excessive degree,” according to Merriam-Webster.
The record surge in a widespread list of assets clearly qualifies!
Plus, the valuation of Uber the company and the way investors are treating it -- and other radically overhyped and over-owned public and private tech firms -- makes it the perfect case study of the phenomenon. Investment bankers are reportedly valuing the ride-sharing company at as much as $120 billion. That’s up a whopping 58% from the $76 billion valuation it achieved back in August. Pretty remarkable when you consider the company has never recorded an operating profit in its entire 9+ year history!
When it comes to the markets, it’s too early to say for sure whether we’ve seen “The Top.” But I have my strong suspicions and concerns, and I always prefer to err on the side of caution.
That’s why I’ve been recommending for months now that investors keep a larger reserve of cash on hand … that they consider hedging their portfolios with things like inverse ETFs … and that they stick with only the highest-rated stocks, as determined by our Weiss Ratings system.
After all, the kind of increasing volatility and manic swings that we’ve now seen twice in just a span of a few months is new. It’s different from what we saw in the few years leading up to January 2018.
This very well could be a harbinger of something more to come. So, I recommend you at least make the adjustments I outlined above as a precautionary step.
Or if you want more guidance and concrete recommendations, just give my Safe Money Report a try by clicking here.
Until next time,
Check out Mike’s short video, Mike Larson’s Yield Picks: OGS, GTY at MoneyShow Dallas here.
Recorded: Oct. 5, 2018.
Check out Mike’s short video, 2 Safe Yield Stock Picks at MoneyShow San Francisco here.
Recorded: August 24, 2018.
Check out Mike’s short video interview, Conservative Stock Picks for 2018 at MoneyShow Las Vegas here.
Recorded: May 14, 2018
Check out Mike’s short video interview What Investors Are Doing Wrong and How to Fix It at MoneyShow Las Vegas here:
Recorded: May 14, 2018.
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