As the saying goes, the market can remain irrational longer than you can remain solvent. And what is happening now is that the big players are being pushed around — David bullying Goliath, if you will — by the legions of day traders, using services including the Robinhood investing app to drive stocks higher.
That is the theory put forward by Michael Batnick, director of research at Ritholtz Wealth Management and author of the Irrelevant Investor blog. “These traders are moving from stock to stock. They squeeze all the juice until there’s nothing left and then move onto the next one,” says Batnick.
He points to this chart from JPMorgan showing the most shorted companies in the Russell 300
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Batnick included this viral video of a young couple sharing their investing strategy on TikTok. (If you don’t click on the link, the man says he buys stocks when they start going up and sells when they stop doing so. Momentum trading, in other words.)
What’s different this time? The networking effect. “This is a gigantic community now, and if we’ve learned anything over the last decade, it’s that we should be careful shorting networks. There are nonmonetary considerations at play here, like belonging. And fun. Did I mention they’re having fun?” says Batnick. “I don’t think these people can continue to make money forever, but this idea that it ends with them going away is not something I see coming.”
The buzz
Supreme Court Chief Justice John Roberts will swear in Joe Biden as the 46th president of the United States. The inauguration will be a lower-key affair due to the COVID-19 pandemic, with some 200,000 flags replacing people on the National Mall. Vice President Mike Pence will represent the departing administration. Biden also announced a raft of first-day executive actions he will take, including rejoining the Paris climate accord and the World Health Organization, and stopping the construction of the U.S.-Mexico border wall.
In one of his last acts in office, President Donald Trump pardoned 73 and commuted the sentences of 70, including former adviser Stephen Bannon, Republican fundraiser Elliott Broidy, and rappers Lil Wayne and Kodak Black. From the business world, Anthony Levandowski was pardoned after stealing trade secrets from technology giant Google’s
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Notably absent from Trump’s list was any member of his family. Joe Exotic, the star of the Netflix series Tiger King, also wasn’t pardoned, after hiring a limousine in anticipation of being released from prison.
Netflix
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Internet giant Alibaba
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Tesla
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Short selling research firm Citron Research is holding a presentation on videogame retailer GameStop
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The markets
U.S. stock futures
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The yield on the 10-year Treasury
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The chart
Ned Davis, the senior investment strategist of his eponymous Ned Davis Research, says the market looks bubbly but that the ride up will still continue. The percentage of stocks making weekly new highs has risen, while the percentage of stocks making new lows has remained low, he said. Historically, new highs peak 36.5 weeks before the market does. He does agree the market looks extended relative to its long-term trend. But it isn’t as extended as 1929 or 2000, he says.
Random reads
Pink seesaws at the U.S.-Mexico border won a design award.
A stolen 500-year-old painting that may have been created by Leonardo da Vinci was returned to a museum, which didn’t know the artwork was missing in the first place.
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