Tags: Tesla | Nikkei | parabolic | top

What Tesla and the Nikkei Have in Common

By    |   Tuesday, 28 May 2013 07:42 AM

Markets have the same things happen over and over again over long periods of time because the habits of people never change. Extreme fear and greed are often present over time.

Today, there is an extreme greed factor going on in two areas of the financial markets. It's so strong that investors feel it's a "one-way bet" that can't be lost. However, it's not long after that time that you'll see both of them turn downward.

The sentiment on Tesla Motors (TSLA) and the Nikkei, a Japanese stock index, couldn't be more bullish. That's when you should get fearful.

Warren Buffett said it best. When everyone gets greedy is when you should get fearful. Then, get greedy when they finally become fearful.

Well right now, the greed with Tesla and the Nikkei is so thick you could cut it with a knife. And it's sentiment extremes like this that causes a stock or index to peak out in the days to months that follow.

So the overly bullish sentiment is one thing that they have in common.

The other thing they have in common is the parabolic move that's happened in each of them. You see, a healthy uptrend in a stock is at a 20 to 35 degree angle. Tesla and the Nikkei are at angles that are at about 60 to 70 degrees. These are what are called parabolic moves. And ALL of them end badly.

The top is a bit hard to gauge because the irrational thinking that took them to these extreme levels can always take them higher near term. But sooner or later (and I believe it will be sooner), these two financial assets will take a huge tumble.

Tesla has tripled within about three months. That is unsustainable ultimately. I know, people will always tell you why "it's different this time." But in watching stocks trade for well over 20 years, I can tell you that it's never different ... it's only different in people's minds at the time, but the end result is never different.

So how has the Nikkei performed lately? That index has practically doubled inside of six months. Once again, that's too steep of an angle to be sustained ultimately.

I can almost hear the naysayers. They'll tell you that the central bank is printing money and that is why this index will continue to head higher. And it may for a bit longer. But ultimately, it's going to end ugly. It always does.

The same thing was said with Bitcoin. However, I'd alerted people on my Facebook and Twitter pages about it because it had gone from $75 to $260 within two weeks. Once again, a parabolic move that was unsustainable.

Well, like I said, I couldn't tell you when the exact top would be. But in the case of Bitcoin, the top came the very next day. Bitcoin crashed from $260 down to the $50s within a few short days.

But once again, there were people who could tell you why "it's different" then too for Bitcoin as to why it should be able to sustain the move.

Experience in the financial markets has taught me that NO parabolic moves are sustainable no matter what the asset is.

Throughout my career, I've had an uncanny ability to think independently and rationally when the crowd gets sucked into the vortex of irrational thinking that is so common with these manias that investors get into.

My most prominent call to date was in alerting everyone I could to the bubble that was about to pop as the Nasdaq hit 5,000. I could hardly talk any of my friends or fellow stockbrokers out of their positions. It even took me a week or two to work on my dad and finally convince him that it was time for us to pull his assets out of the market as well.

So I hope you heed these words of caution: Don't get sucked into the idea that anything is a "one-way bet" or a "no-lose" situation. It's when you get to feeling that confident (based off of the past trading history of the stock or index) that you'll find you've gotten hypnotized by the market.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust.
Click Here
to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.

© 2020 Newsmax Finance. All rights reserved.

1Like our page
Markets have the same things happen over and over again over long periods of time because the habits of people never change. Extreme fear and greed are often present over time.
Tuesday, 28 May 2013 07:42 AM
Newsmax Media, Inc.

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved