Corruption in the stock market is nothing new. Even before the FED and the SEC there were rules for investing in the stock market. Trouble is, nobody actually followed them and it didn't get any better after the private banks pushed the Federal Reserve into existence in 1913. The Fed was implemented to prevent financial collapse, but they are a huge part of the reason the country entered the Great Depression in 1929 and I would argue that the Fed (after Congress and the Treasury) is the biggest culprit behind our current financial malaise.
What does this historical data have to do with Travelzoo (TZOO) or the price of eggs? Well I'll get to that in a minute. You see the market price of eggs is a supply and demand issue but it's also a money supply issue because the more money the central bank prints, the higher the prices we pay for goods and services. The more money we print also means higher prices for internet-bubble equities as well because people make "mal-investments" to keep up with inflation as money comes cheap from low interest rates and QE and needs a sexy investment class to call home. Lately, there has been some dissent amongst Fed members and it seems that the QE free lunch may be the actual reason behind $104 a barrel oil and not the evil speculator. Many Americans are waking up to the fact that the formation of a corporate new world order is not in their best interest.
Speaking of speculation, here are 4 overpriced stocks to short with a tight stop loss or by using call options as a hedge if you think the current ponzi architecture will fail. One thing is certain -- watch the 50 day moving average because trend followers will likely short these stocks after selling them if the market heads back below the 5 day. Buying leading stocks is a great strategy in bull markets and many traders follow the Jesse Livermore blueprint by shorting a leader after the overall markets break down. Today's leading stocks are no different, but timing is everything and investors have to keep an eye on unemployment rates, CAPE PE ratios, the 50 and 200 day moving averages, macro trends, technological developments, innovation, etc. ...
Amazon (AMZN) -- A great company but a terrible investment in our view, Amazon has managed to avoid paying state sales taxes in most parts of the country thanks to a savvy legal team. Moving forward, however, strapped state governments will continue trying to tax this company who's competitive advantage is heavily reliant on skirting state sales taxes. Already, Amazon has agreed to collect and pay sales taxes in Texas and we think California, New York, and others will follow suit in coming months. Amazon's recent jump to $226 was highly suspect in our view and looks a lot like a short squeeze to us. We think short sellers should consider buying in the money put options and selling at the money put options (put spread) or selling a bear call spread against the stock. Another way to play the short side would be to short the stock and place a stop loss order at around $235. The Amazon bulls will have to push the name above last summer's all time high, and we think this is not likely to happen despite what the biased sell side analyst community would have you believe.
Amazon is trading for over 165X earnings and the cash flow which many analysts rave about is actually coming from things like taking longer to pay vendors and borrowing short term debt. Amazon looks like a good/fantastic short at $226 as long as the overall market is heading lower and the S&P breaks below the 50 day.
Salesforce.com (CRM) -- Marc Benioff has done a tremendous job leading the most innovative company in the most innovative space in technology with keen vision and incredible foresight. There is no question that CRM is one of the great technology companies of our time. As for investing in the stock, however, you have to be religiously connected to the name or worship Marc Benioff like a demi-god. Look, at Hedgephone we hate being right about the wrong things, but to us CRM looks like an overvalued and over-hyped bubble stock that could blow up any day now. There really is no PE ratio or solid valuation metric to follow because CRM is a money losing business at this point. The chart looks weak with the name unable to break above all time highs in the $161 range set last summer. In our view a good risk reward set up exists from the short side with a hard stop loss set at $161.50.
Nasdaq 100 Index (QQQ) -- We have been bearish for months on the QQQ, but being early is not the same as being wrong. We didn't recommend shorting this until around $66 or so and our market models are now in the green on this short. The QQQ is trading for over 30X collective earnings and Apple (AAPL) looks highly vulnerable to us because of the loss of Steve Jobs and also the sheer size of the business and possible saturation of the market for Apple products -- this quarter looks great but the future growth may come in below current investor expectations. The QQQ 50 day and 200 day moving averages should be closely watched.
Russell 2000 (IWM) -- The Russell 2000 has been eerily quiet for around a year now and never really recovered like the other averages after last summer's route. We think the Russell is the most economically sensitive and expensive index fund and should be avoided on the long side. If you want to short the IWM, consider buying front month slightly in the money put options or selling call option spreads on the IWM.
Disclosure: I am short CRM. I may short some Amazon shares in the coming week and am short calls on CRM