Highflying stocks: Nemesis for the hubristic coming sooner rather than later
I have a few thoughts about the markets and hubris and trying to keep perspective about the next 10,000 days of our lives, as we head into the weekend.
I see multiple stocks up 20-30% every day these days, even giant multi-billion companies like SPLK and other already-overly-loved tech stocks like AMD and NFLX going up close to 10% on upgrades from analysts who have missed the entire bull market.
While that might be a great market for daytrading and momentum swing trading, that’s always fleeting. Sentiment and momentum can swing in a heartbeat and all those people highfiving because they made big gains this week are likely going to be in pain when the turn, even a temporary downturn hits. And I tend to think we’re about to get that 5-7% downturn I’ve been expecting, starting likely next week as hubris and highfiving go hand and hand. And the markets hate hubris.
And this comment from a long-time subscriber this afternoon in the Trading With Cody chat room, as the trading week comes to a close underscores the feeling that many of us, including me, have from not having owned EVERY stock that’s gone up a ton this week, even as the fact is that we do own and are up nearly 800% on this stock since we bought less than three years ago.
Subscriber: “New high today for NVDA. In your July 17 Latest Positions you mention that NVDA ‘is still quite overvalued and overloved.’ The stock is up almost $20 since July 17. What are your thoughts on NVDA in light of these comments?”
My thoughts and analysis on Nvidia haven’t really changed much since July 17, as the stock is still up more than 700% from our cost basis. And NVDA’s up just about 5% above where it was the last time we trimmed and I commented that it was quite overvalued and overloved. I guess I’d say it’s even more overloved right now!
On this same topic, earlier this week, Citron posted a new short note about Nvidia:
“NVDA on its way to $200. With short interest at an all time low and datacenter facing major competition not even ray tracing can support these lofty levels. For full story go to http://www.citronresearch.com for the 10 reasons we see $200″
Remember that 18 months ago, Citron got bearish on Nvidia calling it overvalued at the time: “Citron is sorta bearish on $NVDA December 28, 2016 by Cody Willard – Citron out with a short note on $NVDA…but his target is approximately where the stock was less than ten trading days ago. He thinks the stock will be back at $90 sometime in 2017.”http://tradingwithcody.com/2016/12/28/citron-is-sorta-bearish-on-nvda/
When Citron posted that short note on NVDA 18 months ago, the stock dropped 5% that day. This time, NVDA went up 5% the same day he posted a new short note.
I posted a comment asking if people remembered Citron’s last Nvidia short note on Twitter earlier this week when Citron came out with a new short-term short note on NVDA. And here’s what the most popular Tweet reply I got back on it was:
“Thanks to NVDA, Citron lost its reputation!”
I wrote back: “I don’t know about that…I still respect Citron very much. Just saying I was right that it would have been better to buy NVDA when they said to short it last time. 🙂 Not sure they’ll be wrong this time tho!”
Their reply: “NVDA went up on the day of his bearish call. That shows how much people care for his calls anymore. Too bad he can’t make a quick buck like he used to. He has to earn it patiently like rest of us.”
I don’t think Citron’s lost their reputation — we’re talking them still for one thing! LOL
And more germane to this analysis, that kind of attitude from armchair traders is another bearish anecdote. The markets hate hubris. And lots of people in the stock market have lots of hubris this week.
Be cautious when others are hubristic. Hubris is defined in Greek tragedy as: “Excessive pride toward or defiance of the gods, leading to nemesis.”
Italics mine. “Leading to nemesis.” And Nemesis appears in Greek tragedy: “The goddess of retribution: Chiefly as the the punisher of hubris. She was sometimes called ‘Adrasteia’, probably meaning ‘one from whom there is no escape.'”
I’ll likely nibble yet more puts and do some more small trims of our own many highflyers early next week if the markets are up again, as I think there’s nemesis for the hubristic coming sooner rather than later.
