Is history repeating itself?

What a bloodbath in the last two days of trading the passing week! Thursday's relentless selloff wiped out the whole week of gain of the markets and then the next day's initial panic selling wiped out another week's gain before it eased off towards the end of the day😢 This must be very painful, especially for those who were chasing the market lately. After all, no one cares about any warning signs that are sounding increasingly louder and louder but who cares when the market will only go up! Here is the saying: Nothing really matters until it matters.....and then it matters really a lot! Indeed, I had a real life experience about it as I was adding short positions more and more lately but was frustrated to see all the warning signs meant nothing to me until Thursday...all the sudden all my shorts deeply in the water abruptly jumped out of the water...and a lot above it!! Does it mean we have seen the top of this round of bull run and more downside is coming? No one knows for sure but I believe so. But it won't be a straight line down of course. We will see a lot of ups and downs even if we start to see a downtrend for the next few weeks. For example during the deep selloff  on Friday, I saw some positive divergence start to show up, which suggested a bouncing at least for a short term. We may see a wonder rally early next week but then most likely we will see more deep selloffs after that. I shared with my DW Family during the day for a short term bounce trade based on this and expect for a quick profit if lucky enough.  



With the excessive exuberance lately, we certainly see evidence of what looks like unusual, dot-com-bubble-esque behavior... It bears the question: is history repeating itself? I will start to collect such kind of evidence moving forward as this was exactly what happened during the formation of the dot.com bubble prior to 2000 and housing bubble prior to 2008. Below are interesting examples of excessive exuberance from various sources I have got:  

1) Tesla has now become the seventh most valuable company in the U.S., overtaking Visa.  And at $452 billion, Tesla is the world's most valuable automaker. It's worth more than twice as much as the classic "Big Three" (General Motors, Ford Motor Co., and Fiat Chrysler) combined, and it's twice as valuable as the distant second, the $217 billion Toyota Motor Corp.(NYSE: TM).

Market cap:
Tesla: $464 billion
Visa: $451 billion

Net Income:
Tesla: $0.4 billion
Visa: $11.8 billion

Profit Margin:
Tesla: 1.4%
Visa 51.4%

By the way, Tesla tumbled by 20% within days after it reached its all time highs around $500. It closed Friday around $418 and I think it can easily bounce a bit higher next week. But I won't be surprised to see it plunge again toward $320ish to meet its 50 DMA in the weeks ahead. As I said, I'm trading TSLA both directions and for now I'm long for at least a few days and then likely short it thereafter. 

2) Based on the fundamentals, Zoom's share price makes even Tesla and Amazon (AMZN) look like bargains. After jumping 40% after its earnings, its PE is 2700+ now, yes, more than two thousands times over its earnings! Talking about the insanity only seen during the epic dot.com bubble🤕  

3) Then Whitney shared an enlightening, if not scary, and entertaining exchange with an 11-year-old boy whose father asked Whitney to talk some sense into him...

The boy recently asked his dad for $50,000 to trade Tesla options after doing well with smaller investments that haven't gone down since he started making them.

"I know it will go up!" the boy told his dad about Tesla stock. The child insisted even after Whitney urged caution and shared his own story of being a "bull market genius" as a young investor in the late 1990s before the dot-com bubble burst.

4) "Today, one of my spouse's employees came up to him and said: "Doesn't your wife trade the market? You know she needs to buy Apple." Investing, stock market, etc., are not part of this business by any stretch of the imagination.

5) That reminded us of another anecdote we heard recently from Michael Batnick, the author of the excellent The Irrelevant Investor blog. It's a funny one...

In a recent episode of a regular YouTube show he hosts, Batnick said that he was in his home office, writing a post titled, "Why Everyone's Trading." Then, a plumber doing work in his home walked in and became part of the story...

Literally this man walks into my office and says, "You do stocks?" So I turned to him and said, "What do you got?" He takes out his phone. He was so excited. He said, "What do I do? I've got $130,000 in the market and I have absolutely no freaking clue what I'm doing." And the names he owned are exactly what you'd expect...

The plumber owned the stocks of tech giants like Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), and Apple... and other familiar names like PayPal (PYPL), Tesla, and Visa (V).

Batnick said he couldn't believe that "I had my very own shoeshine moment." He was referencing the well-used line allegedly said by the famous patriarch Joseph Kennedy just before the 1929 crash, "If shoeshine boys are giving stock tips, then it's time to get out of the market."

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So much for today. But let me be very clear, I'm not saying we are seeing THE top of the market. After all even with the harsh Mar 35% selloff, the market is still in its decade long bull trend. Until this trend line is breaking down, it may continue to run higher, especially if Trump wins his second term (fingers crossed). But for now we may have seen the near term top with a lot of volatility coming up. Don't be surprised to see 10-15% or even more sharp selloffs in the next few weeks. The best scenario I'd like to see is a more severe correction coming up very soon, followed by a good bounce back close to the Nov election to aid Trump's election!💪💪✌✌