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The Echo Chamber is Getting Full

Here's another one of my rants. The last one preceded the rip-your-face-off rally back in 2012.

if you don't get the reference, shame on you.

I'm tired.

Tuesday left me pretty mentally fatigued, but I didn't really do much.

Instead I found myself wrapped up in the game that is $AAPL earnings. I analyzed the name, charted it 13 different ways, read the options tape for a feel of directional bias, and checked out social sources to see the overall sentiment.

But honestly? It didn't matter. That level of analysis is not my wheelhouse.

No Signal

We're reaching what I consider to be a very noisy peak in equities for the intermediate term.

Not in terms of price, just in terms of analysis, newer investors trying to find the Next Big Thing, and oversaturated media coverege.

How do I know this?

First , damn near everyone has an opinion on AAPL and it's products, earnings growth, and technicals.

Second, new traders who HAVE NO BUSINESS TRADING OPTIONS INTO EARNINGS are loading the boat up with long puts or calls into the event. If you don't know how the implied volatility crush will affect your position, don't play it.

Third, a little bird told me about this massive traffic spike on StockTwits, which I believe to be driven by the AAPL earnings event. I can't even watch the "ALL" stream on StockTwits because there's no more signal left. It's all chest thumping and questions about AAPL.

The Truth About Markets

The way financial markets work is that the collective participation of money will stick to the same stocks. This is amplified by media coverage of only a handful of names and the fact that major funds can only stick with the most liquid stocks.

Liquidity begets liquidity.

And sometimes this reaches a fever pitch. It doesn't have to mark any sort of price bottom or top; rather, it just tells us that there are often better, more profitable, and repeatable setups that many are overlooking.

I contend that $AAPL is just like $GLD and the precious metals runup we had last year.

Overanalyzed, overwatched, and the media were all over them due to price action and the ability to put eyeballs on screens.

Both AAPL and precious metals have similar price patterns: moments of brilliance for 2 months, and then range for about 6 months.

So, yet again, if you don't understand how market cycles work and how trendiness can fade even when the market is still bullish, you can be wrong.

Over in StartupLand...

By the way, the same thing is happening in the tech startup space. We're seeing great exits, funding rounds, and acquisitions at high valuations. And both the bulls and bears are out on their Tumblr blags telling us about a Great New Age or how this is a giant bubble.

Two VC's have pointed this out, and they are working hard to turn off the noise.

Good advice.

Where We Go From Here

I believe that all of this single stock risk is particularly heightened due to earnings season.

But what next?

Here's my guess...

We hit the summer doldrums. Somebody will throw a Molotov cocktail in Greece, and we'll be back to the same song and dance from the past 2 summers.

Macro will start to matter again.

And volatility will pick up in Oil, Gold, and the Euro. Those three have very very cheap options right now.

 

by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/