Wow, another roller coaster ride for the market that saw major indices rocket higher, then stumbled into the close. But the broad market could have set itself on fire, and no one would have noticed. All eyes continued to watch the short squeeze saga, which took an unsurprising, but dastardly turn for the worst for individual investors.

 

Wall Street didn’t put its collective finger on the scales, but it put an iron fist on the side of hedge funds. 

Several trading platforms, including Robinhood, denied individual investors the right to buy certain stocks. Hint, the stocks that hedge funds have heavy short positions. It was the kind of boldfaced move that only Wall Street could pull off.

Imagine watching a boxing match, and the 500-to-1 underdog is winning, on the verge of a knockout, then the referee pulls out a set of brass knuckles. He hits the underdog on the head, and the whole time, the announcer describes the dramatic blow and altered momentum as an inevitability.

All this happens while also wagging their fingers at others, thinking of beating the champ. Later, the referee says he assaulted the long shot pugilist to save him from getting hurt later in the bout. Bizarre?  It could only happen in an old Jerry Lewis movie for laughs. 

It happened in plain sight yesterday. The investing world picked hedge funds over individual investors. And did the latter dirty. It’s heartbreaking and bewildering. I think it’s illegal. And if it’s not, it should be. And while we are on the subject, there must be rules against 140% of a company’s float being sold short, borrowed, and sold over and over and over again.

This concept smacks of collusion, manipulation, and disdain for the dreams and aspirations of smaller investors. And while we are on the topic, these short campaigns are not about price discovery or taking advantage of potentially overpriced stocks.

These campaigns destroy companies. Period.

The good news is Congress is looking into this. The bad news is these shorts, including players in the current drama - have pumped a lot of money into the coffers of prominent politicians, including Speaker Nancy Pelosi.

Perhaps the saddest part of it all is Robinhood took aim at its customers. 

Message of the Market

It was an exciting session away from the drama of those short squeeze names. I found it interesting that the market bolted higher after the slight miss on the Gross Domestic Product (GDP). But I thought selling in the prior session was overdone. I cannot put a finger on what the market wants from the Fed, only that I sense it would like even more than the $120 billion in monthly asset purchases it’s already getting.

The session was tantalizing until the last hour of trading when all big indices suddenly faded fast and hard. If the closing bell hadn’t rung, there is no doubt stocks would have finished much lower.

 Market breadth was impressive with the key difference in the continued commitment and conviction of buyers of shares traded on the NASDAQ Composite. Close to seven billion shares traded higher with less than half that in the down volume.

Market Breadth	NYSE	NASDAQ
Advancing	2,215	2,157
Declining	969	1,714
Up Volume	3.37B	6.80B
Down Volume	3.32B	2.76B

There was a marked change in the number of new 52-week highs from just a week ago.

NYSE	January 14	January 28
New Highs	374	62
New Lows	3	9

NASDAQ	January 14	January 28
New Highs	607	113
New Lows	6	24

Shrinking Pool of Winners

Not only have hundreds of names pulled back from recent new highs, but a big chunk also has gone from the plus column into the red. That whole notion of the market broadening is out the window.

S&P 500 Winners 

• 255 average gain: +6.52%
• Top twenty average gain: +23.19%         

S&P 500 Losers 

• 249 average loss: -4.39%

• Bottom twenty average decline: -10.96%

Spread Across the Board

Despite fading into the close, all eleven sectors in the S&P 500 finished the session higher. Interestingly, Financials enjoyed the best outing, followed by Materials and Industrials.

Individual Investor Pragmatism

As the media continue to portray individual investors as degenerate gamblers, who are unaware of the risks associated with trading the market, the facts are different. According to the latest survey from the American Association of Individual Investors (AAll), Bullishness plunged to 37.7% from 42.6% in the prior week.

Concerns

• 28% of the country’s ability to manage coronavirus pandemic and distribute vaccine in the near future
• 22% of the new administration and its policies are the most influential factors
• 15% economic trends
• 15% extremely high valuations
• 7% earnings reports
• 6% economic stimulus efforts

Many mention stock valuations, indicating an acute awareness of traditional valuations and how much the market has rallied. It completely counters the narrative painted by folks looking to taint the actions taken to hobble individual investors.

Ironically, the more bearish individual investors become, the more bullish the Wall Street crowd becomes.
The Thurston Howell III Award

 

It was a tough week for billionaire hedge fund managers before the system came to their aid. That’s why they took to the airwaves and social media to shout their grievances.

Leon Cooperman -who I like a lot - has a wonderful story of climbing from lower-middle-class to the upper echelons of wealth and went berserk on CNBC yesterday.

A few of his colorful observations:

On Retail Traders

“The reason the market is doing what it’s doing is, people are sitting at home, getting their checks from the government, basically trading for no commissions and no interest rates. I’m not saying they’re stupid. Show me a guy with a good record consistently, and I’ll show you a smart guy.”

On Fair Share

“I hate that expression with a passion! This fair share is a bullsh*t concept! It’s just a way of attacking wealthy people.”

I agree with him on the fair share, but it sounds different, coming from a guy with more money than most countries.

Then there’s the new owner of the NY Mets, Steve Cohen, who didn’t win any fans. He got into a tussle and got hammered (Leon Cooperman would have had better adjectives) by Dave Portnoy.

Dave Portnoy

@stoolpresidente

But you couldn’t buy anything period.  They forced the price to crash so hedge funds could cover their shorts.  There will need to be a full investigation into the events of today.  Phone records, surveillance, the works.

Steven Cohen

@StevenACohen2

Replying to @stoolpresidente and @RobinhoodApp

Legitimate questions that deserve answers. My guess is they were protecting their own hide if stocks burst and people couldn’t put up margin. It happens in commodity markets all the time. They don’t have to lend money if they don’t want to.

They got into a deeper scrap where Portnoy dragged the billionaire over the coals big time.

Washington is getting into the act; watch Wall Street donations do a lot of blocking and tackling.

 

Portfolio Review

We added to Real Estate yesterday.

 

Today’s Session

The major indices are lower however the heavily shorted names continue to soar higher. The earnings parade continues with mixed results. Visa (V), W beat.  Meanwhile, Caterpillar (CAT), Eli Lilly (LLY), Visa (V), Western Digital (WDC) and Skyworks (SWKS) beat expectations. Chevron (CVX) and Honeywell (HON) missed.

On the economic front, personal spending declined 0.2% in December but was better than the forecast of a 0.4% drop as there was a rise in closure amid more Covid cases.  Personal income however was up by 0.6%.

 

 

 

Comments

It is so discouraging to see so many foul play in this world especially in the trading market. All I want is a piece of the pie and show that someone who came out of places that people deem as finished and no future can succeed and pick up another lost soul and show them the way to financial prosperity through work and patience. I really feel nothing is going to be done but I confine and respect those who want to help others like you. Thank you Mr. Payne. Rafael Morales on 1/29/2021 10:49:00 AM

God Bless you Charles for waving the banner of the individual investor, the everyday worker and each American Citizen. Bring down the Big Guys, dems or repubs, that hide behind their wall of privilege! Lorin K on 1/29/2021 11:02:10 AM

When is enough ENOUGH Paul Roberts on 1/29/2021 11:04:06 AM

Always enjoyed your comments on your program. I trade with Motley Fool advisory and use schwab for execution. Earned slightly under 100 per cent last year. Now am 20 percent cash don,t like market richard on 1/29/2021 11:09:28 AM

This is the best commentary that I have seen concerning the recent action in the market.....we individual investors are being lumped into "one ignorant group of unworthy participants" concerning what took place this week....short buyers that have been making tons of money all of a sudden are feeling the wrath of greed and they got caught with there hands in the cookie jar....I hope that we do not fund a bailout with taxpayer money to help these poor souls... Gary Jugenheimer on 1/29/2021 11:23:16 AM

An excellent article! It would be sad if it ends here and no one is held accountable. Yes, every investor takes on risk...mistakes are what is our greatest teacher, however, markets and stocks should remain open for trading. Well done Charles...keep up the outstanding work! Trev W on 1/29/2021 12:24:34 PM

I always knew you were a stand up guy, Charles! kris on 1/29/2021 3:50:57 PM

Wow! That's all I can say Charles. Here I am at 51, family man with 3 daughters, blissfully unaware of things happening recently but after playing catch-up yesterday to understand what's going on I see now that the real power of the market can be harnessed by the masses. It's great to know we have someone like yourself standing up for us with your various media platforms. Not sure where this all ends up but keep fighting! Thank you. Jeff Nagle on 1/29/2021 6:34:23 PM

The bad news is Politicians ( who get their pockets lined with cash by the big donors ) are looking into this. Any time you hear a Politician use the term "hard working Americans" to justify some stupid new program or Law you should immediately call your Senator and Congressional Rep and say STOP IT! garro on 1/30/2021 9:43:29 AM

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