Blowing Bubbles

Published on: June 14th, 2017

It is really starting to look and feel like a tech bubble out there… again. Here is what to watch out for and how to manage the risks.

Comments

  • JM
    Jim M.
    10 July 2017 @ 19:56
    3 0
    Julian's been my #1 RV personality. This is huge.
  • JB
    Jason B.
    19 July 2017 @ 22:07
    1 0
    Could one play this through a long term put option (Jan 2019) on AMZN or NVDA that strikes at about half of current prices?
    • JB
      Jason B.
      29 July 2017 @ 19:29
      0 0
      Thanks, Julian! Much appreciated.
    • JB
      Julian B. | Contributor
      24 July 2017 @ 21:45
      6 0
      Hi Jason, sorry for the late reply but I'm just getting a hang of the new website. Here's the thing with bubbles. If you are long stay long for as long as you can, especially in the parabolic phase. Conversely, never speculate against a parabolic move. The time to buy puts is once we see weakness 1) having made a new high, we fail and break back below the last neckline (tough to pick but you can get lucky) 2) When you've has a sharp drop from the highs and then a powerful rally that fails. That's a bull trap rally. If you want examples look at silver in 2011. It was textbook.
  • LD
    Lance D.
    25 July 2017 @ 11:23
    0 0
    Hi Julien You say "Finally, it is also worth considering that myAmmo Index (a measure of available margin) suggests that the broad market’s ability to absorb any significant increase in VaR (Value at Risk),which one would expect on a sharp correctionas volatility explodes,is extremely limited. Therefore, even if funds want to buy the dip their ability maybe severely limited. " are you basically saying that theres a chance that brokers will not allow it be brought ? i have had instances where i have wanted to trade say a etf to find out the instrument is not tradable whereas a couple of weeks earlier the was no problem. Thanks Lance
  • SA
    Sandeep A.
    26 July 2017 @ 12:43
    0 0
    Do you think that Tesla fits the pattern of breaking back below neckline and now is in a bull trap rally. How about a long term put option on Tesla SA
  • NB
    Neil B.
    30 July 2017 @ 02:28
    0 0
    JULIAN: Questions posed below for you. Hi Julian. Nice and timely piece, thank you. I've also been keeping a close watch on all these FANTANG ( FB, AMZN, NFLX, TSLA, AAPL, NVDA, GOOG ) stocks as they have been the primary culprits pulling the the Tech indexes up masking declining breadth and participation from the majority of stocks in those indexes. The crowding into passive index ETF's and Funds is also fueling a self fulfilling prophecy in that as more $ enters a and these narrow set of stocks keeps ramping higher a larger and larger % of those passive $ allocated is simply and blindly shoved into these glamor stocks of the moment. I agree eventually they will break and the momentum crowd will turn negative very quickly but trying to pick a top is like an Russian roulette in reverse ( only one position in the chamber without a bullet! ). Two things I am interested to see your views on (1) and (2) below: (1) If and when a break below the neckline occurs and the initial wave of sharp selling ensues, as you say there will be a strong snap back rally at some stage when the downswing is way oversold back up to the neckline area. Would you recommend ( under the BTFD - Buy The "F" Dip mentality that pervades these markets to buy the dip in those cases for a potentially large rapid gain before reversing the position for the longer term decline? (2) The debate between arithmetic and log scale charts. I notice you are using arithmetic charts vs. log. Most chartists swear by log scale vs. arithmetic. But for charts that are experiencing a "bubble" type pattern I've noticed that if one uses log charts the "bubble" type ramp and pattern is just not near as apparent as when one applies a log chart. So many human eyes which are looking at log charts in addition to automated algo trading programs may have a completely different view of the sustainability of these potential bubbles which, in and of itself, could perpetuate the rise ( i.e. complacency since the chart, despite any fundamentals, still appears relatively sanguine and sort of "normal" stead rise visually ). With so many more using charts than ever before I wonder whether this might also be a factor to fuel the rises further than anyone looking at the arithmetic charts for any of the bubble/mania candidate stocks would ever imagine. I have also noticed, I believe, whenever I've seen charts presented in RV that they appear to be arithmetic rather than log scale. I've debated the use of either in my own mind over the years and these days I use both sometimes switching back and forth. I'm very interested to know your and Raoul's perspectives and views on this arithmetic vs. log scale chartist contention an debate. Thank you!
  • YO
    Yousef O.
    30 July 2017 @ 21:40
    1 0
    Great intro article - would appreciate learning more about the "ammo" index...
  • AC
    Andrew C.
    31 July 2017 @ 02:26
    0 0
    @Julian With the recent release of the NYSE margin data, there are quite a few articles in the past week about margin loans being highest in history. So yes, I would love to hear more on your "ammo" index. Should margin amount be taken as a percentage of market cap? Hence we expect it to be at a record with the market at a record high?
  • rm
    robert m.
    2 August 2017 @ 16:31
    0 0
    I like the idea of the "neckline" concept as a sell indicator, however what at the exact mechanics involved. Price action is key and is a 10% fall a sell signal. Are there some tools that I can deploy across my entire portfolio.
    • NB
      Neil B.
      2 August 2017 @ 18:50
      0 0
      Robert, I suppose Julian might want to explain this from his perspective and experience ( and I am not quite sure whether, or how, Julian and Raoul will find a way to keep subscribers of Macro Insiders more incrementally informed when certain action points are reached or to be considered across any of their ideas since there are essentially only 4 chances per week for them under the current format to Macro Insiders to officially convey their ideas to us ... outside of replying to Comments on these threads of course ... it's a question I have raised within one of my prior Comments actually ).... but there is no absolute rule in terms of basing decisions on % moves generally speaking but with a head and shoulders (H&S) pattern, the idea is that once price breaks beneath the neckline, the H&S topping pattern is considered valid/confirmed and, at that stage, the trading theory is that upon retracement of price back towards the bottom side of the neckline ( where it broke below ) would be an objective zone to put on or start scaling into a short position if one had not already built a short position ahead of the break in anticipation of a potential break. Some like to anticipate the break and short prior to it within the H&S pattern while others like to wait for the break to make their move into a position. If one would start to accumulate shorts within the H&S pattern before the break then one might have a higher reward but also potentially a higher risk since at anytime the pattern may morph into something completely different, never break beneath the neckline and continue onwards and upwards thereby blowing the shorts out of the water. But keep in mind, that the H&S pattern is not confirmed till it breaks the neckline and sticks beneath it. Also there is no guarantee that price would actually retrace fully to that underside neckline break ( or even partially ). But generally speaking there is some retracement back upwards before a further decline continues. Of course there is always chance that price comes back thru the neckline and invalidates the break. So just like with anything there are no guarantees. You can search the web for stock price patterns and find a wealth of information about H&S and all the others and how to interpret and potentially play them depending on your risk tolerance and trading style. Plus of course you must have either a stop loss in place or at least a stop loss in mind that you will keep monitoring for to invoke if things should go against you. Risk management is key in all this.
  • rm
    robert m.
    2 August 2017 @ 16:32
    1 0
    Is there anyway to implement the Euro Dollar trade without setting a currency trading account.
    • NB
      Neil B.
      7 August 2017 @ 13:39
      0 0
      Not that there is anything against opening a Forex account or getting involved with it. But Forex is highly levered and it's a more complex task to calculate risk of portfolio and evaluate/set stop losses ( due to pip value move loss/gain is different across different currency pairs because of exchange rate differentials ) compared to straight stock or un-leveraged ETF products. Of course there are calculators to help with figuring this all out but unless seasoned and very careful one can really blow up one's account very quickly with Forex. Perhaps I'm being over-cautionary and, of course, those with experience and success trading Forex might scoff at this caution. Forex is a very elegant environment to trade of course and comes with some great advantages ( due to the trending that can occur and the fact that profits can run fast due to the leveraged nature ) ... but just pointing out that it takes even more careful pre-seasoning and discipline than what some may have honed their skills on thus far and should lead them to approach Forex with due caution and either refrain from opening an account even if they had access to do so until they really learned the ropes ... or cut their teeth only on a simulated "paper trading" account funded to the level and with rules based approach to truly simulate the amount of funds and trading approach they plan to use on an actual "live" account. For example, trading a "paper" account like a cowboy with unrealistic fund levels and shoot from the hip trading style and then transitioning to a "live" account with the same approach is a recipe for disaster. Having said that, of course there is nothing like actually trading using real money and real experience. But prep ahead of time with Forex is, in my view, something quite necessary due to the factors I have conveyed. Bottom line sentiment though, within the scope of Macro Insiders ... given that it is a product targeted towards retail investors ... it would be nice to have some break away material/content that delved into some of the tactical approaches and guidance to getting involved and trading in Forex by Raoul and Julian. I think many here would really love to see that. Yes there is a sea of information out there online to go thru and view across the web. But to see some curated and distilled presentation and guidance from Raoul and Julian would be lovely indeed .
    • LD
      Lance D.
      5 August 2017 @ 19:56
      0 0
      Why would you not want to open a currency trading account ?
    • LD
      Lance D.
      5 August 2017 @ 19:54
      0 0
      *does not
    • LD
      Lance D.
      5 August 2017 @ 19:53
      0 0
      I like the idea of educational videos you describe however i feel they should be confined to the RVTV section and not on this format. I also feel that if you don't understand don't trade also remember a stop loss downs nessacerily mean you have manage you risk 100%
    • rm
      robert m.
      3 August 2017 @ 20:37
      0 0
      Neil- thanks for the follow up. It would be helpful to have educational videos from Raoul and Julian as the depth of their experience and training is beyond my understanding and this may be the case for most subscribers. I am similar with the ETFs you suggested and they may serve my purpose at this point in time. I am looking into a couple of other services that may provide a basis for setting stop losses based on past price changes.
    • NB
      Neil B.
      2 August 2017 @ 19:07
      0 0
      Robert, I also have the same challenge with Raoul's trade idea in terms of having access to Euro Dollar options. I had written some comments within Raoul's piece along these lines and posing some questions on alternate approaches which you may wish to review. Even if one can get access to an Options or Currency trading account, many are simply not comfortable with the esoteric and higher risk nature of such trades. We can go do our own research about options of course ( which I have in the past ) but options can get fairly ( well, very ) complex and one must be seasoned and have the mind for it all in the first place. Forex trading looks very attractive on the surface as well since currency markets are the most liquid, least able to be manipulated and some tend to trend very well once they get underway in one thematic direction. But they are highly leveraged markets and if one is not extremely careful with position size AND risk management ( i.e. stops in place at all times ), one can blow one's account up very quickly if a trade goes against ( much quicker than with non-leveraged stock or ETF trading ). Of course also there are ETF's ( like UUP which is the US$ ETF ) which focus on currencies but of course risk is lower ( because they are not leveraged ) while the reward for being right on a trade would be lower than with a direct Forex trade due to the leveraged nature of Forex. Again, you can search for Forex and find massive amounts of information on it all to help you feel it all out. Would be very nice if Macro Insiders would include some further videos providing insight into how to trade Options and Forex which perhaps can help peel away the layers of complexity to help us understand from Raoul's and Julian's experiences and perspectives the way to use them. Like we have seen for some other topics in some of the RealVision Educational/Training videos.
  • RM
    Ritwik M. | Real Vision
    31 July 2018 @ 02:15
    0 0
    Impressive