Bigger correction of the market after fierce rally? Watch out for the market overhang.

Stock splits have let Apple and Tesla perform high right after the announcement. Apple has split 4-for-1 and Tesla 5-for-1 last week. Please see my blog about stock split down below link.

https://techongstudy.blogspot.com/2020/08/stock-split-and-your-portfolio.html?m=1

However, stocks of Apple and Tesla each fell more than 17% and 23% which could be a sign for bigger correction as investor fears of great leap will be adjusted. Some of the investors worry about double dip since the market is rallying fiercely from March whereas the real economy is now on slow pace of recovery. Quick response on monetary and fiscal policy has eased the financial market by purchasing corporate bonds, ETFs, and so on. With the announcement effect from Fed, investors were full of greet to purchase the assets hoping financial market would be rebounded with the back of abundant liquidity and bank lending programs. Howard Marks concerned money printing will lead to investor’s FOMO syndrome which will drive risky market melt-ups. See my blog about FOMO.

https://techongstudy.blogspot.com/2020/08/fomo-fear-of-missing-out.html?m=1

James Mackintosh points out three areas about dangerous signs of the market rallies: “overly optimistic sentiment, the impact of options trading, and the speed and scale of the rise of leviathan technology stocks. It is not only mom-and-pop investors but also Softbank, one of the leading investment companies on IT sectors, has rushed $4billion on option trading to participate the market rally.

Perhaps, pessimists say that whereabouts now are similar to the dot-com bubble in early 2000s which Nasdaq has experienced sharp price crush. The lesson from the great burst has “rediscovered the value of caution, and put option (act of selling) became popular again” for the past 3 days’ market movements. Still, optimists say the mega tech companies are prospering with high profits in their balance sheet. The danger isn’t as prominent as so many dot-coms in the past. Still, investors should be cautious to estimate the value of the stocks since S&P 500 Shiller CAPE Ratio (way of measuring price earning ratio) now is over 30. Of course, it is not easy to measure the value of each stocks, since there are many variables to measure, however, let’s put in to Warren Buffett’s shoes pondering “Will he buy that stocks?"