A bubble is still inflated....

This was the note I sent to my chat groups yesterday: "The past few days have been very brutal to bulls but I think it has come to the end of this run of correction. I bet tomorrow we may see a reversal. Right now I think the best speculation is to short volatility."

Well the market indeed rebounded strongly today. Timing-wise I'm lucky but I think the market has a habit to trick people, especially when the TV talking heads are quickly changing their moods from extremely bearish to very bullish. I think the market will cool off, maybe even retest the Wednesday low around 4050. If that level holds then we will see a more sustainable rally. Let's see how it goes. 😜

Now today's topic. Are we in a bubble? Where it all depends on how to define a bubble. According to Investopedia:

"A bubble is a market cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. Typically, what creates a bubble is a surge in asset prices driven by exuberant market behavior. During a bubble, assets typically trade at a price that greatly exceeds the asset's intrinsic value. Rather, the price does not align with the fundamentals of the asset."

And looking at the historical chart below about the epic bubbles in the past, it definitely looks like we are already deep in a bubble. The question is when it is going to burst. Again, it is not if but just when a bubble will erupt as history has demonstrated its fate again and again!

Having said that, "If everyone sees it, is it still a bubble?"  As a "contrarian" investor, it is usually when "everyone" is talking about an event; it doesn't happen.

As Mark Hulbert noted recently, "everyone" is worrying about a "bubble" in the stock market. To wit:

"To appreciate how widespread current concern about a bubble is, consider the accompanying chart of data from Google Trends. It plots the relative frequency of Google searches based on the term 'stock market bubble.' Notice that this frequency has recently jumped to a far-higher level than at any other point over the last five years."

You see, the past few days of just a few percentage points of mini crash has already scared many into panic. This is not what we should see for a major bubble being burst. We haven't seen sufficiently high euphoria that fools people into insanity without any fear whatsoever. As such, I think we are just in the process of blowing up the bubble to its extreme state. And we are still yet to see the final Melt-Up phase showing up. Probably we are still quite a few months away from the ultimate top of the bubble. Here is the advice: Don't predict, but be prepared!