Market futures are gapping down this morning. Apple and Amazon both reported earnings on Thursday’s close and fell in after hours trading to make the most recent bounce look like another one of the many bull traps we have seen this year set by the bears.
Last night Robinhood reported earnings also. That stock fell 9% in after hours when the earnings showed that the company lost $392 million on $299 in revenue in the last quarter. The company already said the other day that it was laying off 9% of its workforce. What was the most interesting tidbit in the earnings release is the fact that the number of monthly active Robinhood traders fell by two million people during this reporting period, for a drop of 11%.
You can see the list of the top Robinhood positions if you have an account with them and see why. Almost every single stock on the list has been smashed during this bear market and so has the crypto coin market, which Robinhood promotes to its users every time they log in. There is still not a single metals ETF or mining stock on the list, which is where the strength has been this year, along with energy stocks. These people are positioned the opposite of the way they should be and keep trying to buy broken stocks.
But, think back to January and February of 2021 when the AMC and Gamestop rise hit the news cycle and got even Tucker Carlson and Rachel Maddow both agreeing with the meme talking points that Robinhood trading could bring a revolution of winning small traders. The talk was that “stonks” were like pyramids and you could just buy and get others to buy and make money and the whole market was like this and it was just starting as more people would open accounts.
Well, the decline in Robinhood users should tell anyone who believed that logic that this game ended months ago and the process is now in reverse.
It’s over now and the bear market that is now loose has only begun to eat the small players.
I know what I just wrote will trigger some of them and even make many of them stop reading the rest of this post, but they are better off to have someone tell them the truth then keep hyping them on this market and talk technobabble at them to keep them believing. I want them to turn themselves into winners and stop HODLING.
The bear will be done by the time Robinhood stock goes down to below a buck.
If you want a sign that this bear market is over look for that to be your sign.
As for now, the market averages broke down last Friday and have just been bouncing on the February/March lows this week.
The up days give people a reason to hope and hold or think a big rally is coming, but then they don’t lead to anywhere.
It’s a slow motion bear market and I have seen this type of bear market play out before.
For instance, it did it with gold mining stocks back in 2013 after silver peaked out in 2012.
That led to bear market action in the HUI index in which it would have sudden legs down dumps over short period and then try to hold for 1-3 weeks and then have a sudden dump again.
Take a look at what I mean with this chart.
Right now, I think this week we are seeing a pause period in the bear market before the next decline like one of the three circled in the chart above.
The next leg down, though, at this point could begin today or next week.
I’d expect we’ll get one and then some sort of bounce in May after the next Fed meeting – or sideways pause may be a better way to put it – and then another drop into the next Fed meeting after that one.
What happens is that one HODL group gets wiped out each leg down until there are no people left to sell, realizing that their “stonks” are actually turds.
Then the bear market is over.
We are in a liquidation of the stock market small fry and Robinhood type.
Of course, fundamentally it’s a bubble peak in overvalued stocks and crypto that has taken place and an environment of raising interest rates not going up high enough to stop inflation, which will eventually lead to a recession, probably next year, even though we just found out yesterday that the first quarter GDP report was negative!
The smart thing to do is lower your risks, focus on the few things in powerful bull trends of their own, trading better than the S&P 500, and be patient about buying the market averages and regular stocks until this all plays out.
The last thing you want to do is hold on to a millstone sinking fund like ARRK.
In bear markets the stocks and sectors that lag the S&P 500 become vulnerable to collapses during market declines.
As you can see from the ARKK/SPX relative strength ratio, the ARKK fund has been doing this for over a year.
ARKK is still on the Robinhood 100 most owned list and is the only managed fund that is on the list.
This pretty much sums up why the Robinhood players are now only starting to bust out of the game.
Remember, when HOOD stock falls under a buck is when we can look for the end of this bear market.
That probably won’t happen for a year, and there probably will be a big bear market rally late summer first.
In 1999 there were supposedly around 60,000 daytrades across the United States trading in places like this:
Over 90% of those daytraders wiped out and vanished and these trading offices no longer exist.
In reality, studies of brokerage accounts done by Terrance Odean in the 1990’s revealed that even in bull markets only 20% of the people make real life changing returns, with 50% losing, and another 30% just performing close to the averages.
The people who have no edge will wipe out and then will either have to realize that they need to take this seriously and learn, study, figure out what they are doing to get one or leave the game forever. Instead of just giving up, the smart few of them will figure out that a bear market leads to a great opportunity to buy stocks at a great valuations in good companies. They’ll figure out they have a chance to invest in real stocks, if they wait and be patient, instead of being burned by junk “stonks.” And maybe a few of those few will figure out that gold and silver investing is the winning game now.
As it stands now, though, two million are gone now and millions more will be out of the game by the end of this year.
Hey, it was free money that funded a lot of these Robinhood accounts so “stonks” it was.
Easy come and easy go.
When its harder to win if you do win you are more likely not to lose it.
Now is the moment in which people who got on to Robinhood in 2020 have to decide whether they are going to take trading seriously and learn from their mistakes, which means studying and educating themselves on how to do this for real, or just give up. Every person who becomes successful in the markets had that moment.
I talked about it in an interview I did with Jim Goddard and talked about how these traders must go beyond looking at what other people on the app own and develop a strategy that works best for them. I recommended a few books that help me get started. To listen to it go here:
Interview: Find Your Investing & Money Management Strategies
-Mike
