Trade Alert: A Little More Nibbling

Back in the middle of last year, I started writing about how I thought we were on the “other side of the bubble”:

“One of the big tells that the market has turned from Blow-Off Top phase to being somewhere on the other side of the Bubble-Blowing Bull Market for most stocks is how they react to news of new money raises. In January and February and into March of this year, whenever a company would make an announcement declaring that they were selling securities to raise money for the balance sheet to invest in their businesses, the stocks would rally on the news. That’s not the case any more as Virgin Galactic and Infinity and many others who have raised money have seen their stocks collapse on the news. The reaction in both of those stocks and many other names that have reacted to money raises similarly is more reflective of the continued collapse in thousands of small cap stocks, most of which are down 70% or more from their highs from earlier this year.”

And boy, are we. The good news it that almost all the pundits out there are now warning people to stay away from unprofitable high growth stocks, which means that many investors have already given up on these stocks and are continuing to do so. The bad news is that we had a huge bubble in unprofitable growth stocks that took valuations to such insane levels that even after many of these stocks have pulled back 70, 80 or even 90%, that most of them are still either wildly speculative or just still overvalued by most metrics. That means that we are most likely in a phase where picking through the rubble and buying the best of the beatens is probably going to be end up being a winning strategy when we look back in a year or two. But it also means that we need to be careful, slow and cautious as we do so.

In that vein, as you might expect, in the hedge fund and in my personal account, I’m doing a little bit more nibbling today on some names like Amazon, Netflix, Spotify, Uber, Infinity and even a little bit of SNAP and TWTR for the first time in a very long time.

I’ve still got plenty of cash to work with and will be slowly selectively nibbling on names on weakness. Easy does it everybody, as always.

We’ll do this week’s Live Q&A Chat at 1pm ET next Friday (tomorrow) in the TWC Chat Room or just email us your question to support@tradingwithcody.com.