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Whenever we get a good strong rally (you know, like the 75%, 11-month one we've been enjoying), it's natural for that scary B-word to start creeping into the conversation - "bubble."
I was making one of my regular appearances on FOX Business Network's "Varney & Co." the other day when host Stuart Varney asked me point-blank whether I could see any bubbles out there.
Today, I'll tell everyone what I told Stuart: "No - mostly."
Because the truth is I do see a little unwarranted froth bubbling up in a sector that's red-hot right now, but you know I'm not too worried - it's easy enough to avoid, and I'll tell you how in a minute.
Steer Clear of These Very Specific "Hot" Investments
Unless you've been stuck on a mountaintop somewhere these past few months, you've heard of the new, favorite vehicle for all the extra cash sloshing around everyone's accounts.
I'm talking about the "blank check" companies, special purpose acquisition companies (SPACs).
They're practically trendy. SPACs are the new, most favorite way to take a company public; a company without any operations raises money to buy a company with operations, and the whole shebang is taken public to great fanfare without any of the traditional hassles that come with an initial public offering.
These SPAC IPOs are coming thick and fast - almost at a rate of one every day. The bad news is lots of them are bubble-fodder, almost pure fluff.
SHAH'S BIGGEST PREDICTION EVER: He's tracking a projected $353 billion "capital wave" that seems to be headed toward five very specific companies over the next 18 months - learn about his "big call" here.
That is the bubble I see forming out there, and I think by the end of 2021, it'll have burst. But there's a very important caveat: There are some great SPACs out there with dynamite prospects for prosperity. I expect these will have zero problems weathering the 2021 bubble.
In fact, I've already recommended one of the best SPACs to my Hyperdrive Portfolio readers; we're having a great time cashing in on the good ones and buying puts on the bad ones.
The bottom line: The safest move you can make in SPAC-land is simply to wait until you hear from me; I'm watching.
The truth is I see much, much more strength out there in the market. Is there a lot of speculation? You bet there is. But here's the kicker...
With the exception of the flash-in-the-pan SPACs, just about all of that speculation is warranted.
How to Play the Strongest Market in Years
All this "good" speculation, even in cryptocurrencies, serves a mechanical purpose for the market: It creates momentum. Momentum, especially bullish momentum, is important.
New retail investors are coming in, Reddit-reading gunslingers are coming in, hedge funds are coming in, institutions and pros are coming in... and the water's fine.
What this adds up to is continued strength, continued long-side gains in the market for, basically, the foreseeable future. It's all good until it isn't, and I just don't see what could spoil the party this year.
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Now, here's what I suggest we do about it.
I've been a big fan of Big Tech for a long time, and we've got plenty of profits to show for it, with doubles, triples, and even quadruples on Microsoft Corp. (NASDAQ: MSFT), Apple Inc. (NASDAQ: AAPL), Netflix Inc. (NASDAQ: NFLX) - all the usual suspects.
I think this sector is going to continue to lead the markets higher because nearly everyone across the investing universe is turning to them; retail investors buy them because they're comfortable doing so, and institutions trade them because of the big-time liquidity.
Together, they account for around 25%, give or take, of the S&P 500 index by weight. Take 25% of your available capital and spread it around these six stocks. My faith in their performance is justified - more than justified - by the earnings growth, profitability, and cash generation they've displayed during this latest leg up.
Now, it's entirely possible you may not have a lot of capital right now - maybe you're one of the new retail investors just hopping into the pool. That's an easy problem to solve now: Buy fractional shares if you can; that innovation is one of the best to come from the whole mobile app-based investing revolution.
To make money in this market, you have to be where the strength is, and tech is where it's at right now. Let all this new momentum work for you, go with the flow of capital. Take the projected $353 billion capital wave I think is headed for five specific companies right now. That's a perfect example.
I happen to think the effect, in terms of momentum, that the new retail investors are having on the market is fantastic right now. That could be a source of profit potential in and of itself. Just look at all the "Super Squeeze" plays that have gone down recently, most famously with a certain video game retailer we all know. My friend and colleague Andrew Keene has made some important tweaks to his algorithm that help him identify what he sees as the two most important predictors of a "Super Squeeze" trade - you should check out what he has to say right here.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.