Jun 14, 2022
Tesla, MicroStrategy, Ark ETF Need to Capitulate Before Stocks Bottom
(Bloomberg) -- MicroStrategy Inc., ARK Innovation exchange-traded fund, Tesla Inc. and Twitter Inc. are what I’m watching to identify the ultimate capitulation point of this cycle.
Every time there’s a panicked few days’ trading in markets, my inbox gets filled with messages asking whether we’ve seen a capitulation point that clears the way for the next bull market in stocks. The short answer is always: No. The more nuanced answer is differentiating between a capitulation point and THE capitulation point. There will be plenty of the former on the way down. Short-term traders can use them to play the powerful bear-market rallies, but they shouldn’t give long-term investors any reason to relax.
In one way, it’s highly encouraging that everyone is still obsessed about when to “buy the dip.” It shows that the cult of equity isn’t broken in the US and Europe -- there’s no fear yet that we may have seen a multi-decade peak a la Japan in 1989 or (maybe) China in 2007. On the other hand, the bear market probably won’t end until we start hearing more such gloomy prognostications.
So what am I watching for as signs of THE big US equity market capitulation? It’s for the bellwether froth trades to all blow up:
- MicroStrategy to implode. This cycle won’t be over until those with leveraged exposure to cryptocurrencies get cleaned out
- ARK Innovation ETF collapses. It’s the flagship for buying into narratives on the future with no consideration of valuation. I arbitrarily picked a close below $33 as key (being the four-year low traded during the pandemic panic) and that level is now near enough after Monday’s close at $36.58
- Tesla is the godfather of meme stocks and the flagship for the idea US technology can do no wrong. A great company but where valuations became unanchored and detached from the market. I never identified a level here, but instead now I have...
- Twitter. The Musk buyout either being terminated or renegotiated at a lower price is my latest signal to watch. It is derivative of the health of Tesla and the general enthusiasm of US tech. (I realize there’s quite a bit of Elon Musk linkage in this list -- both direct and indirect -- and I’m okay with that.)
Those are the markers I’m seeking to prove fear has trumped greed and speculative positions have been cleaned out, meaning it’ll be time to become a long-term US stocks bull again.
- NOTE: Mark Cudmore is a macro strategist and the global managing editor of Bloomberg’s Markets Live team. The observations he makes are his own and not intended as investment advice. For more markets analysis, see the MLIV blog.
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