Tech stocks wobbly, while Redditors goose, shorts drop Rocket Companies
WASHINGTON – This has been a week of fresh hell for relatively conservative investors like yours truly. After what seemed like a lifetime of endless profitability, the tech trade stiffened, then started to collapse. It all seemed to start about a week ago, and it’s accelerated during this first awful week of March. Not helping: Rapidly rising 10-year Treasury yields. Background fun: Short squeezing Redditors goose Quicken Loans parent Rocket Companies (NASDAQ: RKT) as shorts apparently fight back. And yes, more and more selling in techs.
More on those rickety tech stocks
Thursday, Invesco’s NASDAQ 100 ETF, (NASDAQ: QQQ), more popularly known as “The Q’s” (Note to Internet censors: this has no relation to QAnon) plummeted again, as did First Trust’s Equal Weight ETF version of that tech heavy index (NASDAQ QQEW). We own (owned) the latter and managed to bail for a significant profit. Hopefully we can buy back in later at a lower price. The big drop in both highly tech-weighted ETFs gives you some idea as to how nasty this week’s market weakness has been.
The NASDAQ has suffered from technical weakness for at least two weeks now. The broader-based S&P 500 has been nearly as bad, trading below its 50-day moving averages as are many tech and retail stocks. The Dow Jones Industrials (DJI or DJIA) are also looking sick as of 11 a.m. ET Friday.
Reflecting this chaos, the previously benign VIX volatility index spiked twice this week as indicated on the chart below.
Unsurprisingly, our portfolios were in record territory last week. But this week, we can’t dump enough shares of what we once regarded as long-term holds. When the melt-down comes – and it may already be upon us – you have to lighten up, taking some losses if you have to and reluctantly booking capital gains reduced over 20% from what they might have been just a week ago.
Redditors, short sellers have fun this week at the expense of mortgage giant Rocket Companies
Quite by accident, we got lucky this week by owning a position in the newish but lately battered shares of Rocket Companies. We slowly established a decent position in this seasoned financial firm. Rocket owns the Quicken family of financial products, making it one of the top two real estate lending firms in the US. Previously, we hadn’t realized just how big a short position Wall Street’s hedge funds had taken in this firm. But those enterprising Redditors and, apparently, some other madcap traders over at StockTwits did. They proceeded to buy the hell out of RKT shares, which, earlier this week, promptly soared from the low 20s to around $40 per share.
In the blink of an eye, we had a surprise profit in our shares of close to 100%. But holding on for an extra day to see what happened proved a bit too greedy. The shares promptly sold off (more shorts piling on?) down into the mid-to-high 2os. We just dumped ours Friday morning for roughly a 50% profit anyway. But we really wanted to make this one a long-term hold. However, this market, at least this week, remains hostile to the buy-and-hold crowd. Hopefully, we can get back into this one at a decent price when it settles down again.
Shorts vs Redditors
You never know where those sneaky Redditors will strike next, unless you read their chatter regularly. But we all should pay closer attention to where the short sellers are, even though general updates only happen every other week. You have to pay for more recent info, and we’re cheap. The Redditors do what they need to do.
In addition to the Wall Street chaos and the Rocket Companies shenanigans, the over all poor market tone is really saying this is all about retaining plenty of capital to redeploy when the idiocy leads to a firm market bottom. Usually, this is part of the “sell in May and go away” rationale. Except that it’s March.
Washington’s ongoing negative political kabuki and interim president Biden’s growth killing policies
One overriding problem is that has Mr Market scared is the seriously negative political kabuki that continues in Washington. Just a few weeks into his still-under-construction administration, interim president Joe Biden has already set into motion much of the “progressive” AOC A-list of economic daisy cutters – like re-killing fossil fuel extraction and the Keystone XL Pipeline project – and opening up the illegal
alien immigration floodgates.
The horror of HR 1
Worse, up on Capitol Hill, the Pelosi-crats running the House have finally coughed up HR 1 – their first actual bill after nearly 3 months in in session. And it’s a doozy. If passed, it will complete what Barack Obama first put into motion in his second term. Namely, the nationalization of US elections, the usurpation of states’ powers over those elections, and the institutionalization of the mail-in, vote-harvesting, ballot-stuffing chicanery that led to fraudulent election results in Election 2020. Fraudulent results that no one in the media dare report.
If passed by the Senate and signed by the interim president – in direct violation of the separation of Federal powers enshrined in the US Constitution – this travesty would complete a legislative overthrow of the US as we know it. And, à la Venezuela, etc., it would establish effective one-party rule here.
And we already know how this movie plays out. This very real danger may also prove an overhang for Mr Market in the weeks and months ahead. But this attempted overthrow of the US Constitution is another story for a different column.
Tech stocks were just the beginning. Jim Cramer warns about this month’s rolling market crash
Meanwhile, we have this week’s ongoing horror show to analyze and try to puzzle out. CNBC’s much-maligned Jim Cramer offered a sobering analysis Friday morning, according to an early morning report via that network’s website.
“In the face of a brutal market sell-off that has knocked U.S. stock averages of their highs, CNBC’s Jim Cramer on Thursday said the market must run through the grief cycle before investors may spot the bottom.
“‘If you want to be able to bottom fish at lower levels, make sure you’ve got a little cash to be able to do it with … because the real rally can’t begin until we work through these five stages of grief,” the “Mad Money” host said. “Once that happens, though, you don’t want to miss it.’
“…The Nasdaq is almost 10% off its peak close last month, while the Dow and S&P 500 are both more than 3% below their February highs. Some investors are eager to buy the dip and continue to ride the bull run, but Cramer suggested that there’s more room for equities to fall due to the bond market, adding that many are in denial about the state of the market.
Cramer on the market’s 5 stages of grief
“The investment community has to go through the five stages of grief, which are denial, anger, bargaining, depression and then acceptance, the host said.
“‘Right now, even after a 6% decline, we’ve still got a ton of denial,’ Cramer said. ‘People don’t want to believe the sell-off is real. The market’s been so good for so long, and many newer investors have never seen this kind of pummeling, so the downdraft does seem pretty surreal.’
“‘Fixed-income investors, worried about inflation that could come with the U.S. economic recovery, are selling bonds and the activity is bleeding into the stock market. Institutional investors taking their cue from the bond market are swapping tech and growth stocks in their holdings for cyclical and value names, and retail investors can’t afford to ignore it,’ Cramer said.
Powell makes matters worse. Again…
“Comments from Federal Reserve Chairman Jerome Powell put further pressure on bonds when he told The Wall Street Journal Thursday that it was monitoring inflation, but stopped short of giving any guidance whether a policy change is on or off the table after about a year of near-zero interest rates…. ‘[S]tocks are getting hammered because the bond vigilantes, as we call them, are angry.’”
“Cramer suggested a one-day decline of as much as 7% in stocks could fast-track the market to the acceptance stage of grief, ‘where there’s a collective sense that the market’s toast.’”
Good advice from an entertainer who’s also a trading pro. Let’s see what happens to tech stocks, Rocket Companies and Mr Market for the rest of the day.
1:15 p.m. ET UPDATE: Confounding investors, major market averages have turned positive by roughly 1% as of early Friday afternoon. Rocket Companies’ shares remain under selling pressure. Who knows where Mr Market’s gyrations will end? But I don’t trust this mini-rally, even if it carries past Friday’s close into Monday’s open. It’s probably good to keep most of our powder dry for lower lows. Too many support levels in too many stocks have been broken this week. Yo-yo market action. Dangerous situation.
Stay tuned. We may have a final update after 4 p.m. ET.
4:20 p.m. ET UPDATE #2: CNBC Headline: Dow rallies 570 points in big turnaround, Nasdaq ends wild day 1.6% higher.
Site provides backup data, but I still think this may be only a relief rally. Still keeping powder dry, but am going to sleep better this weekend. Have a good one.
– Headline image: Yikes! Wile E. Coyote’s portfolio is doing almost as bad as everyone else’s as the first week of March, 2021 ends strangely negative.
(Warner Bros classic cartoon image, reimagined for satirical purposes. Fair use.)