Semiconductor stocks are soaring this morning. Much like yesterday. And last week.
Big-name companies like Micron Technology (MU) are topping $1 trillion in valuation – a larger value than Berkshire Hathaway. Shares are up over 120% in the past month alone.
That’s what traders call “parabolic.”
The mainstream news treats this kind of move as the start of a new age – a paradigm that won’t last.
But parabolic moves occur in two parts. The first part is the part where those long make life-changing gains. But then the parabola unwinds:
Parabolic moves higher are unsustainable, whether in an individual stock, a sector, or the market as a whole. (Source: Trading View)
When the pullback comes, it will be more brutal than a typical market rally and decline. The violence of the parabolic move higher has a dark mirror in a drop lower.
It was Newton who described gravity, wasn’t it? What goes up must come down.
For the Nasdaq in 2000, the start of a brutal bear market kicked off with a swift 30% loss. Bear market rallies kept investors in – or treating the move as a “buy the dip” opportunity.
Yes, there’s a lot of capital sloshing around out there. As we saw yesterday, there’s a historic level of margin debt, too. When the speculators get a margin call… all bets are off.
Markets can go higher, and for seemingly any reason. But when you have a parabolic move, caution is wise, the better move.
Don’t get out over your skis.
It’s an ideal time to take some profits on semiconductor holdings. The easy money has been made. Now the hard part is about to begin.
If you want to go further than take some profits off the table and potentially benefit from a sharp downturn in semiconductor stocks, become a member of Grey Swan Pro — details here. We just identified one play that could lead to a big return.
~ Addison
P.S. While market margins soar, some stocks are off to the moon – notably space stocks ahead of the hotly anticipated initial public offering (IPO) for SpaceX.
The setup in the stock market gives us an opportunity to stress the distinction between “investing” and “trading.” The Grey Swan Model Portfolio is primarily composed of stocks that are enjoying bull-market gains and paying high dividends, a perfect mix for long-term investors.
Over at the Grey Swan Trading Fraternity, our own Andrew Packer just issued an alert to close a trade in a space-related stock that’s been soaring in recent weeks. Total gains as of Friday’s close were over 130% – with a final return of over 200% following this morning’s market surge.
The SpaceX IPO, valued at nearly $2 trillion, will be a lot for the market to digest – and could lead to a vacuum sucking up capital from other stocks. This may be yet another case of the old adage of buying the rumor – in this case, all the details of the SpaceX IPO – and selling the news when it does happen.
As always, if you have any questions for us, send them to Feedback@GreySwanFraternity.com.
