Whether egged on by a bullhorn or simply by an "influencer" with a large social media following, people feel safer in a crowd of like-minded individuals. They feel the comfort that they belong- and that their actions are justified. Be that a social protest in the streets, or a new shiny investment such as a stock or commodity, or Bitcoin.

Bitcoin recently came close to 41K and now trades closer to 32K (as of Wednesday). At the recent high of Bitcoin, there were multiple articles and opinions published with forecasts and price targets north of 100K within a year. Many major financial institutions have recently been adding crypto as part of new strategies of exposure, and upon that news only to have it pull back by close to 20% in short order. Welcome to the Bitcoin rollercoaster. The “all-in” “fear of missing out” “you only live once” psychology of the moment and momentum- looks like it ran into an intermediate-term top. But it's Bitcoin, so who knows.

On the stock front, we are seeing message boards on Reddit driving stocks higher. They crowdsource their picks and flood the market with buyers. It is reminiscent of the earlier NASDAQ dot com bubble days of the early 2000s. Irrational price action is driving names like GameStop (GME) Blackberry (BB) Bed Bath & Beyond (BBBY) to dizzying heights. After a period of many months of being heavily shorted, suddenly the shares of GameStop came under intense buying pressure. On Monday GameStop had a wild day, with a gap up opening of 49% from the Friday close to 96 with a high for the day @ 159.18 only to fall to close well off the opening price. What's behind the moves? These kinds of rallies can only be explained by two things both combining for geometric rallies: frantic buying from short-covering and frantic momentum buying. Recently there was an activist board assembled and that optimism combined with a new Reddit ecosystem of buyers-has produced a retail crowdsourced community of frantic buyers and hunters of the shorts in GameStop. For now, these rallies are wreaking havoc on major funds that put on large shorts bets and are now scrambling to cover their mounting losses at stratospheric levels. The pattern that often plays out: 1/spike high on massive volume, 2/ sell-off, 3/rally attempt on lower volume, and 4/eventual collapse in price. Proceed with caution!

Although humans have free will, they tend to act in mass and as a pack in many areas of life, be it fashion trends, lifestyle choices, and of course investments. Older wiser professionals have seen the public shrug off fear and chase momentum and ignore any semblance of the term “overbought”. History usually repeats itself and ambitious traders always feel “this time is different!". History also shows us that's often the top of the market. The shiny stock is often a market bubble. Times may have changed, but whether tulips, or bitcoin, or GameStop-the psychology of the moment is never different. Crowds, well, act like crowds.

The question, for now, is are we seeing signs of a stock market investment trend changing? The equity markets are becoming less broad-based, advance /decline numbers are starting to lag, and large-cap stocks are holding up better than small caps,(as professional money looks for bigger liquid names., for easier exits)

Be careful out there.


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