My family and I went to Denver over the weekend and noticed that people were out everywhere, mostly unmasked. There’s no doubt that the reopening of the economy has been a boon for the travel and entertainment businesses.

But I wonder how much of this booming consumer economy might fade as people spend the last of their stimulus checks. If ever there was a one-time catalyst for consumer spending, it has been the past year’s worth of stimulus, unemployment and other benefits that the government provided.

The pandemic isn’t over yet as the Delta variant and a global lack of vaccines means millions of people are likely to suffer around the world in coming months. The Olympics in Japan are about to take place as a new wave hits there. Few in the U.S. seem concerned that the global economy is going to be weaker than expected this year and perhaps next year, even if the U.S. economy improves.

Ugly charts

One thing I did on the road was run through charts of hundreds of stocks, just to confirm what I expected them to look like, especially in the small-cap tech sector:

Most small-cap and lots of big-cap tech charts look like they’ve finished doing a blow-off top back in February/March and have since been gyrating but in a slow grind lower.

The biggest question now for traders is whether these current levels are going to turn out to be support or resistance. If support, then most of these stocks will rally from here, with some reversing at least half of their recent 50%-70% pullbacks. If resistance, then most of these stocks will have a good bit of room to fall further.

I was talking to an adviser of mine about this and said out loud that many of these charts remind me of the dot-com charts in 2000 when they had topped in February/March and then made some dead cat-bounces higher, before eventually falling straight out of bed, with many plunging 80%-100%.

My friend went to pull up charts from those days, but I reminded him that all of the charts for the thousands of stocks that went to $0 before the markets eventually bottomed in 2002/2003 are no longer available. And those are the charts that are probably most relevant to today’s situation. Not that I think this market will crash quite like that one did in 2001-2002, but we could be in for a slow grind lower toward $0 for hundreds of stocks that are currently being valued at billions of dollars or hundreds of millions of dollars, not to mention the penny-stock tiny caps that are valued in the tens of millions, many of which have recently joined the parabolic blow-off top parade.

K-tel records

Remember back in 1998 when KTLI popped 500% in one week after the company said it was going to start a website where you could buy K-tel records? I remember reading retail investors’ comments on message boards that would explain to any doubters that they just didn’t realize how big the online opportunity for record and music sales was going to turn out to be. What could go wrong by throwing a little bit of money in front of that kind of a train before it left the station by buying a much cheaper stock than Amazon.com Inc.
AMZN,
-0.62%
.
, which was clearly already the leader in retailing stuff online? K-tel doesn’t exist any more and the stock went to $0.

And this time around, courtesy of how everybody decided that they should try to make hedge funds scramble on the most heavily shorted names, it’s almost as if every single chart of the worst companies out there has also gone parabolic and is still up huge from, well, $0. The worst stocks went up the most this year, and that’s yet another sign of the currently popping bubble.

Many stock charts that I looked at are down 30%-40% in the last two or three weeks, as many of the names that were bought because they were being added to one of the Russell Indexes are now being sold.

Lesson of the FAANGs

Look, most of our own portfolio isn’t small-cap tech stocks. That said, we bought Apple Inc.
AAPL,
-1.50%

when it was worth a few billion dollars. We bought Google
GOOG,
-0.47%

(Alphabet today) when it was worth tens of billions. Same with Facebook Inc.
FB,
-1.46%
.
And Amazon. And bitcoin
BTCUSD,
-5.14%

was worth a couple billion dollars when we first bought it. These are worth trillions now. But few of the current batch of stocks worth less than $10 billion look attractive to me right now.

Outside of the Space Revolution, which itself hasn’t even really started yet, I find most valuations out there to be way too high to be attractive to me. I continue to work on a handful of new names in the AI sector, but I’m not rushing things. I’m not willing to lose my discipline with our money. Today, and the last few weeks, have been a reminder to many people that stocks and cryptos can create pain. That pain leads to reaction, just as greed earlier led to action.

Be careful out there. Don’t force it. Be patient.

Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own, or plan to own, securities mentioned in this column. 

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