Cracks in high-momentum "story" stocks, like leaks in a dike, are often an early warning that the broader market may be about to fall, according to Minyanville columnist Michael Gayed.

Gayed, chief investment strategist at Pension Partners said stock market history is chock-a-block with high flyers that eventually came to earth, sometimes in flames.

In the 1960s and the 1970s, the "Nifty 50" overpriced growth stocks were popular, and in the 1990s, there was dot-com mania that ended especially badly with cratered portfolios for many individual investors.

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"Inevitably, all late-stage bull markets become enamored with a number of 'story' stocks, where investors pay astronomical multiples for future prospects rather than current income and cash flow," he wrote.

"The allure of these stocks becomes too great for retail investors to resist, as they can no longer stand to hear about friends and neighbors doubling and tripling their money in short periods of time."

In 2013, Gayed noted, overbought bellwethers tend to be companies with "disruptive" technologies, such as social media faves Facebook, LinkedIn, Yelp, Pandora and Groupon; solar energy names like SunPower Corp. and Solar City; digital media plays like Netflix; and — no list of this type would be complete without it — electric vehicle maker Tesla.

Gayed said the Global X Social Media Index exchange-traded fund has begun to underperform the Standard & Poor's 500 in recent days even as the S&P continues to punch to new highs. Likewise, Tesla has weakened versus the broader market.

"With stocks like Tesla trading at 267x this year's earnings, the maintenance of faith is very important. Without it, they can fall very quickly as we have seen in the past," he noted.

"At the very least, then, fragility in the story stocks is a cautionary signal with the potential for greater significance if this weakness persists."
What about Twitter, the latest social media darling that is expected to go public on the New York Stock Exchange next week?

Twitter's balance sheet shows that while revenue is expected to total $422 million, costs are projected at $548 million — not exactly a profit machine, at least in the short run, according to Fox News Minnesota.

In its 164-page prospectus, the apparent next "story" stock lays out its baggage as well as its frothy prospects so that forewarned investors can be to the judge.

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