[Note: This material is for educational and entertainment purposes only. It does not recommend investments of any kind. Use a professional and licensed advisor or broker when making investment decisions]

In the last few days, I have read articles on marketwatch.com, a Wall Street Journal site, that have done well to explain why stocks are where they are. We are into uncharted territory again–well it can’t be “again” and “uncharted territory” at the same time, but it’s new so perhaps “everything old is new again.”

In order to make sense of the current market environment, I have to reflect back on the environment of the Tech Bubble in 2000. I was working a trade desk and right in the middle of the mania—the insanity of that time. The only valid criterion for making an investment was whether it would keep going up. Valuation had no meaning because there was a narrative out there that justified any price.  There are definitely parallels from that time to this one. There’s the same “blue sky” of opportunity attitude with AI as there was for the dotcom stocks: there are a handful of stocks that dominate the indexes and ironically some of the same (few large stocks today were dotcom darlings 25 years ago and their values disproportionately represented the indexes and most mutual-fund portfolios.

To make it even weirder, not only is AI generating a mania for the relevant  (mostly tech) stocks, AI systems generate many of the trading decisions—often buying stocks heavy into AI.

There are some other unusual and more esoteric stockmarket elements that involve options. This time it’s about buying massive amounts of call options very close to expiration. Many blame the crash of 1986 on the practice of selling put options. You don’t have to know what these things are; you only have to know that options are derivatives and thus a form of leverage i.e. someone can control huge blocks of securities for a fraction of their value

Just one anecdote about the.com bubble: Amazon, when it was only a book seller, was trading around a couple hundred dollars per share. One analyst said it would go to 500. A second one said it would go to 50. They were both right within a couple years. The first analyst got the job of the second one for being right first.  My point is that during a time of rampant bullishness, there are people whose purpose in life is to justify the prices.

Oh, and Nvidia was a dotcom company twenty-five years ago, too. It recently went vertical for days on end, then reversed last week–rather abruptly. Most of last week, the chart of the tech stock index was almost identical to the chart of NVDA (Nvidia symbol) and als0 impacted the SP500 index. NVDA was the market.

I expect to see an adjustment very soon. There are “gaps” in the chart as much a 10% lower for the tech stock ETF, the QQQ. Conventional wisdom says that gaps get filled. We shall see.

WRH