Monday is going to be interesting for equities


Still way too much wild madness, including the uUltimate bet of the bag holder: why the bottom is not close.

By Wolf Richter for WOLF STREET.

I went to the streets for blood on Friday night after the sale to see if the markets had bottomed out, but there was no blood. Instead, there were discussions about the next rally, what to buy and when. And there was DVD rental company Redbox Entertainment, one of the infamous SPACs, and video streaming service Chicken Soup for the Soul Entertainment, which is to acquire Redbox, in a completely ridiculous crazy-wild game with a date limit (we’ll get to that in a moment).

That this game is even being played – that this utter madness in the markets continues – indicates that there is still far too much exuberance, far too much liquidity, far too much madness. And the bottom isn’t there until that kind of crazy stuff is smothered.

It took 12 years of money printing and interest rate repression to inflate this crazy bubble of everything, and it will take years to untie it.

But the markets are moving forward.

The S&P 500 index fell 2.9% on Friday and 5.1% for the week, the biggest weekly drop since January. Closing at 3,901, the index is down 19% from its January peak and is back to the 52-week closing lows of May 19-20. Monday is going to be interesting: a rebound, or the start of the next leg down.

The Nasdaq Composite fell 3.5% on Friday and 5.6% for the week. At 11,340, it is down 30% from its November high. Its closing low occurred on May 24 at 11,264. Still not there yet.

Even Exxon, which has been soaring along with other energy stocks for months, fell 1.9% for the day, the second straight day of declines.

First bloodshed among tech and social media giants.

Apple fell 3.9% for the day and 6.8% for the week, is down 25% from the January 3 high and nears its 52-week low.

Microsoft fell 4.5% for the day and 7.0% for the week to its 52-week closing low, matching its May 20 close, and is awaiting further instructions on Monday.

My admiration, in terms of executing perfect market timing, goes to CEO Satya Nadella who had sold 50% of those Microsoft shares in one day, November 22, 2021, for $285 million in total, thus nailing the peak Microsoft shares, which have since plunged 27.6%, and nailed the top of the Nasdaq Composite. Saved him $78 million.

Amazon, despite the 20-for-1 stock split and the large-scale financial engineering scheme to buy back $10 billion of its stock with borrowed money, fell 5.6% on Friday and 12, 5% for the week, but remained a little above its two-year low from May 24.

Meta, which bets its virtual farm on the metaverse and has ditched “Facebook” out of all it can, including in its name and ticker symbol, fell 4.6% for the day and 9.5% for the week, and is down 54% from its high, and at $175.57 it is back where it was in December 2017.

Tesla fell 3.1% on Friday and 5% for the week, and is down 44% from its November peak. On Friday night, he said he would split his action 3-for-1, and given the damage Amazon has suffered since announcing his action, this one is going to be interesting.

This is another sign: as long as these stock splits continue, the market is far from bottoming out.

Other standouts include Intel, which fell below $40 on Friday, its lowest closing price since October 2017.

$ Friday from above
Apple [AAPL] 137.13 -3.9% -25.0%
Microsoft [MSFT] 252.99 -4.5% -27.6%
Amazon [AMZN] 109.65 -5.6% -41.9%
Alphabet [GOOG] 2228.55 -3.0% -26.7%
Meta [META] 175.57 -4.6% -54.3%
You’re here [TSLA] 696.69 -3.1% -44.0%
Nvidia [NVDA] 169.74 -5.9% -51.0%
netflix [NFLX] 182.94 -5.1% -73.9% [CRM] 178.45 -6.0% -42.8%
Intel [INTC] 39.18 -2.1% -42.7%

All Bubble started deflating in February 2021, it was just hard to see.

The S&P 500 began to deflate after its peak on January 3, 2022. The Nasdaq began to deflate on November 23, the day after the Microsoft CEO sold half of his Microsoft shares.

But the IPO and SPAC stocks, and various other stocks, which had been the biggest and most ridiculous – and the funds and indices that follow them – began to deflate in February 2021, with many stocks cracking 70 %, 80% and over 90% in weeks and months, so in March 2021 I wondered, was this the IPO stock bubble that just burst? And it was. And I started collecting stories for my Implosed Stocks column.

Ark Innovations ETF [ARKK] is another indicator of when the markets could be approaching the bottom, and we are far from it.

The fund, which tracks a collection of ridiculous high-flyers, fell 7.1% on Friday and 9.7% for the week to $40.11, above its 52-week closing low on May 11. . The fund is down 75% from its February 16 peak. 2021 – yes, this February 2021 – and is back where it was in May 2017.

Despite the losses, there are still many strong believers in Cathie Wood and the miracles she will perform with these high flyers who she says offer “disruptive innovation” that “potentially changes the way the world works”. And as long as his funds are still active and still attracting new funds, we’re nowhere near the bottom (data via YCharts):

And there will be huge rallies, and they will attract more money, and it’s only when all that money has been incinerated that we get closer to the bottom.

The Renaissance IPO ETF [IPO] fell 4.5% on Friday and 7.9% for the week, is down 61% from its February 16, 2021 high and is back where it first was in May 2018 ( data via YCharts):

Neither the Renaissance IPO ETF nor the Ark Innovation fund is old enough to have survived the dotcom meltdown or the financial crisis. They were formed a few years after the financial crisis in the era of money printing and interest rate repression and have never known anything else.

Now the money printing and interest rate crackdown is gone, rates are rising and QT is here. And we don’t know what the ETF IPO and Ark Innovation will look like when all is said and done, but they could end up in the dump.

The ultimate bet of the bag holder: why the bottom is not close.

So here’s Redbox again. The DVD rental company went public in October 2021 via a merger with a $10 SPAC. The stock [RDBX] peaked at $27.22 and then, in perfect SPAC tradition, hit 94% at $1.61 on Feb 24, 2022. That still makes sense.

But understand this: On May 11, when Redbox was trading at $2.58, chicken soup [CSSE] offered to acquire it for 0.087 Chicken Soup shares per Redbox share. At the time, the acquisition price was around $0.69 per share, while Redbox was trading at $2.58 per share. mmmkay.

It gets crazier — as dissected by Matt Levine on Bloomberg Opinion in an emailed note. Redbox’s majority shareholder has approved the deal. Thus, upon closing of the acquisition, Redbox shareholders will receive 0.087 Chicken Soup shares. It’s the deadline.

On Friday, Chicken Soup shares closed at $8.76, meaning that at that price, Redbox shareholders would get $0.76 per share when the deal closes.

Wait a minute… meme-stock jockeys drove the price of Redbox up, starting in mid-April, and on Friday the shares soared another 39% in regular trading and 3.6% after the regular hours at $13.67. Since mid-April, the price has increased almost 7 times.

But whoever ends up owning those shares when the acquisition closes will receive 0.087 shares of Chicken Soup for each Redbox share, which today would equal $0.76 per share. These ultimate shareholders would be the ultimate holders of the bag.

The game is to drive Redbox shares as much as possible, then to everybody to throw them away before they end up as bag carriers with 0.087 parts of chicken soup per each. And it will be a hilarious spectacle.

But the smart ones will throw it on the way up before everyone else throws them because when everyone throws them it will be too late.

The other option for meme stock jockeys is also to get the chicken soup up [CSSE]. On Friday, shares jumped 19%, and for the week they jumped 35%, and in the past month they jumped 68%. But at $8.76 on Friday, they’re still down 82% from the June 2021 high, and at that price each bag holder would still only get $0.76 per Redbox share for which they have paid $13.67 today (data via YCharts):

And they all know it’s just a crazy, wild game of speculation, and it doesn’t matter if it’s this kind of nonsensical trading – and the efforts to cluster and manipulate that come with it – or cryptos , or whatever: The only hope is to find a bigger fool to sell this stuff to because it’s just a game.

And as long as this kind of madness continues, the stock market rout is far from over, and there still isn’t a drop of blood in the street. There will be huge gatherings, and they will attract more people, and yes, some people have already been wiped out, but not enough to end the process of deflating the bubble of everything.

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