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Morning Commentary

RETAIL INVESTORS DEFLATED

By Charles Payne, CEO & Principal Analyst
2/19/2021 9:44 AM

Image result for day after parade trash

Well, the GameStop (GME) hearings have come and gone, and the aftermath feels much like most revelers coming home after the Mardi Gras. Despite having the most fun of their adult enjoyment, they find themselves heading home with hangovers and doubts.

When I look at the stock market, it doesn’t take an expert in body language to see that the young individual investor community is deflated. They held their own and put up a great fight with GameStop, even when their hands were tied behind their backs.  

I suppose there is a sense that nothing will be done about synthetic puts, excessive shorting, selling order flow, and changing the rules in the middle of the game. All the stuff they did, making tons of money on, came in hard during the session and harder after the close.

GameStop

The CEO of Robinhood described getting a call at 2 am, and that his firm had a capital issue and had to do something drastic. That’s when they decided to ban going ‘long’ GameStop and many other Reddit favorites. 

At least that’s the story he told to members of Congress yesterday. And most just nodded in agreement, while others remained skeptical. Put me in the latter and put yourself in the shoes of a CEO of a brokerage firm with limited cash.

You are watching a stock trade more shares with parabolic prices, and somehow you do nothing. In fact, you are so unfazed that you were sound asleep when the phone rang at 2 am?

I’m calling it B.S.

Rounding the numbers using the closing price, GameStop started the year with $170.0 million in daily volume. Soon, it was trading north of four billion in volume. You make the call then to financial backers and seek the best terms, unless you are so enthralled with the avalanche of new accounts, you ignore the issue.

My theory is the CEO of Robinhood was loathed diluting the stock ahead of what had been billed as a potential sizzling initial public offering (IPO). 

Sadly, the financial media provided cover for this lame excuse. Robinhood restrictions kicked in on January 28th, and the stock has moved straight down since.

Date

Shares

Close

Est Value

Jan 4

10 million

$17

$170,000,000

Jan 13

144 million

$31

$4,464,000,000

Jan 22

197 million

$65

$12,805,000,000

Jan 25

177 million

$76

$13,452,000,000

Jan 26

176 million

$148

$26,048,000,000

Jan 27

93 million

$347

$32,271,000,000

Jan 28

58 million

$483 (session high)

$28,014,000,000

Jan 29

50 million

$413 (session high)

$20,650,000,000

 

More air came out of the stock yesterday, as it popped briefly when “Roaring Kitty” (@roraringkitty) initially spoke about how the stock changed his life.

By the closing bell, the stock was down $5.25 or 11.43% to $40.69. Retail investors know the cavalry isn’t coming in the form of government help. There was nothing on excessive shorting, synthetic puts, naked shorts, and selling order flow. The party isn’t over, but like Mardi Gras, there is a post-party letdown.

Solar & Renewable

The renewable energy world was hit by a one-two punch. On the one hand, there is the pullback in all the hottest stocks in the market. And on the other hand, the wind was knocked out of all these names after monumental failures after massive winter storms slammed Texas. 

Governor Abbott placed the blame for hundreds of thousands left without power on the failures of renewable energy efforts and an over-reliance on wind power. Solar and Wind were slammed (see TAN ETF).

TAN

Renewable Energy Stocks Run Out of Gas

Weed Stocks

Weed stocks have gone up in smoke as retail investors lose their buzz. 

Bitcoin (BTC)

Bottom Line

These stocks were all overbought on a short-term basis, and if it took a sobering moment from a disappointing hearing in D.C. to trigger selling, I’m cool with that. I am not cool with changing the rules. I hate when anyone acts like the changes were made to help the retail investor.

I am a potential buyer of the stocks above, although maybe as trading vehicles. I’m spying AMC Entertainment (AMC) for a buy-and-hold. And I might get back into BlackBerry Limited (BB), which was in my own account for two years when I got an email that it was a part of the short squeeze mania.

There is a difference between trading and investing. The former removes a lot of the advantages of Wall Street, including front running, deploying algorithms, and other advantages.

Lessons to be learned are taking big gains. Do not panic when the tide turns. And always rely on your research and recheck your work, which has to be more than an online tip.  Stay in the Game!

Portfolio Review

 

This morning, we are adding to Consumer Staples in the Hotline Model Portfolio. 

 

 

Today’s Session

The major indices are indicating higher this morning.  Nasdaq had the larges one day loss in February and along with the S&P 500 was down for 3 consecutive days.  Treasury Secretary Janet Yellen’s call for more stimulus is helping propel the markets this morning. Yesterday, she stated, “I think the price of doing too little is much higher than the price of doing something big. We think that the benefits will far outweigh the costs in the longer run.”

Deere (DE), Applied Materials (AMAT) Roku (ROKU), are some of the latest companies to report earnings, and are also adding to the markets upside.

 


Comments
Just to share an experience. I'm 77 yr ex military, retired teacher, husband to a wonderful 71 yr retired teacher. 8 days ago we tested positive to the covid-19. We were sick( slight fever, aches, sore throat, stuffy nose) not as bad as some flu or throat infections we've had in the past. We have had friends and friends of friends who have been sicker. It's just not that bad! We are very thankful that it was not!

Lorin K. on 2/19/2021 10:42:14 AM
 

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