What Do We “Know” About Robinhood & WallStreetBets

During the past two weeks we have seen extreme volatility in some stocks like GameStop Corporation (GME), AMC Entertainment Holdings, Inc. (AMC), Koss Corporation (KOSS), Blackberry Limited (BB) and Nokia Oyj (NOK) to name just a few.

We’ve also seen unprecedented levels of political and media interest in trading, social media like Reddit’s WallStreetBets (#WSB) and trading platforms like Robinhood.

Senator Warren on CNBC yesterday afternoon, in what very quickly devolved into a platform for discussing a wealth tax. AOC on twitch @alexisohanian, @alexisgoldstein, and #TheStockGuy.

Davey Day Trader (#DDTG) (David Portnoy) publicly fought on Twitter with Point72’s Steven Cohen.

Stephen Colbert (@stephenAtHome) and Jon Stewart (@jonstewart) also “weighed” in on the subject via social media.

With the wild market moves, the trials and tribulations of the various trading platforms and so many celebrities joining the fray, it is difficult to know what is going on. In fact, we are unlikely to know what really happened for months, if we ever find out the details. In the meantime, I think we can make some intelligent decisions on what we know with a high degree of confidence.

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1.     Whatever is going on is now fully in the political and regulatory arena. That is rarely bullish for markets.

2.     The concept that the market is priced based on fundamentals is taking a beating as so much of recent trading is clearly technical in nature.

3.     The Reddit sub, WallStreetBets, has been around for many months and helped propel a lot of other stocks higher, but no one seemed to care when they were pumping those stocks.

4.     There will be a Michael Lewis book on the subject (okay, this is just a wild guess and isn’t relative to the thesis, but I would read this book if he writes it).

When I look at these three things, I do not see how they can be helpful for the market in the near-term.

As discussed on Bloomberg TV on Tuesday (starting at the 5 minute mark), a 5% to 10% pullback in the Nasdaq 100 is my current outlook. We are almost 5% into it so I may have to make the call for a deeper NDX fall. I expect this fall to continue to be led by the highflyers that benefited most from the WSB trades before they moved on to the short squeeze. Many investors have piled into those shares and they may lose some support, which in this momentum driven market is crucial.

There are a lot of moving pieces, but I think distilling it to some things we “know” with a high degree of certainty can help us make it through the coming days and weeks.

I will not be “dabbling” in any of the stocks mentioned above, as the volatility is too extreme and I don’t have a strong view how this battle will play out.

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