My family and I spent the weekend in Denver, and we noted that folks were out in force, primarily uncovered. The liberalization of the economy has undoubtedly benefited the tourist and entertainment industries. However, as consumers spend the remainder of their stimulus checks, I’m wondering how much of this robust consumer economy will disappear. If there was ever a one-time driver for consumer spending, it was the government’s stimulus, unemployment, and other assistance over the last year.
The epidemic isn’t done yet, as the Delta variety and a global shortage of immunizations imply that millions more individuals will be affected in the next months all over the world. The Olympics are ready to begin in Japan as a new wave strikes the country. Even if the US economy improves, few in the US appear concerned that the global economy would be weaker than predicted this year and possibly next year. Unappealing graphs On the way, one of the things I did was look at the charts of hundreds of stocks to see whether they looked like what I expected, especially in the small-cap tech sector:
Most small-cap and many large-cap tech charts appear to have completed a blow-off top in February/March and have been gyrating but in a gradual slog lower since then. The main concern for traders right now is whether these present levels will prove to be support or resistance. Most of these companies will rise from here if support holds, with some reversing at least half of their recent 50 percent to 70 percent pullbacks. If resistance holds, most of these stocks will have room to fall even deeper. I was discussing this with one of my advisers and mentioned out loud that many of these charts remind me of the dot-com charts in 2000, which peaked in February/March and then had some dead cat bounces higher before finally falling out of bed, with many tumbling 80 percent to 100%. My friend tried to look up charts from back then, but I reminded him that all of the charts for the thousands of stocks that dropped to zero before the markets bottomed out in 2002/2003 are no longer available. And they are the graphs that are most likely to be useful in today’s situation. Not that I believe this market will crash as badly as the one in 2001-2002, but hundreds of stocks worth billions or hundreds of millions of dollars, not to mention penny-stock tiny caps worth tens of millions, could be on the verge of joining the parabolic blow-off top parade. K-tel is a company that makes recordings. Remember how KTLI jumped 500% in a week after the firm announced it will launch a website where you could buy K-tel albums in 1998? I recall reading comments on message boards from retail investors who explained to any skeptics that they simply didn’t comprehend how large the online possibilities for record and music sales would turn out to be. What could possibly go wrong with putting a little money in front of that kind of train before it leaves the station by buying a much cheaper stock than Amazon.com Inc. AMZN, -0.87%, which was clearly already the leader in online retailing? K-tel is no longer in business, and the stock has dropped to $0. And this time, because to how everyone chose to attempt to make hedge funds rush on the most severely shorted names, it’s almost as if every single chart of the worst firms has gone parabolic and is still up massively from, well, $0. This year, the poorest stocks have risen the most, which is just another indicator of the rapidly bursting bubble. Many of the stocks I looked at have dropped 30% to 40% in the last two or three weeks, as many of the names that were purchased because they were going to be added to one of the Russell Indexes are now being sold. The FAANGs’ Lesson Look, we don’t have a lot of small-cap tech stocks in our portfolio. That said, when Apple Inc. AAPL, -1.51 percent was worth a few billion dollars, we bought it. We bought Google GOOG, -0.78% (Alphabet now) when it was worth tens of billions of dollars. Facebook Inc. FB, -1.33 percent is in the same boat.
And then there’s Amazon. When we first bought bitcoin BTCUSD, -4.97 percent, it was worth a couple of billion dollars. These are now worth trillions of dollars. However, few of the current batch of stocks with a market capitalization of less than $10 billion appeal to me at this time. With the exception of the Space Revolution, which hasn’t even begun, I think most valuations to be far too high to be appealing to me. I’m still working on a few more AI-related names, but I’m not rushing anything. I’m not willing to let our financial discipline slip. Many individuals have been reminded today, and in recent weeks, that stocks and cryptos can cause misery. That discomfort prompts a reaction, just as greed did previously. Take care when you’re out there. Don’t try to force it. Patience is required. Cody Willard is the editor of the Revolution Investing newsletter and a contributor for MarketWatch. Willard or his investing firm may possess or intend to own the securities discussed in this piece./n
