The GameStop Stock Trigger No One Is Calling
$20 to $500, then $500 to $50. GME is on a roller coaster ride and no one (at least from what we’re seeing) is telling you why.
Well, when we dug in and looked at the price spikes and dips, we found a clear trigger.
We’ll dive into how and what this means for you.
Plus, we’re seeing a super bearish sign for the big FANG stocks (Facebook, Amazon/Apple, Netflix and Google) that tells us this trade has reached the end of the line.
FANG money is flooding into a new set of stocks.
It’s early enough that you have the potential to lock in four-digit returns from here. Here’s our picks and more for the Fourth Industrial Revolution:
GameStop’s Surging Crash: Why It Happened
Paul: Ian, this week we are going to try to hit the roundup. Last week we spent a great deal of time on GameStop. A lot of people liked it. Let’s follow up a little bit on that. I am sure there are people who still have questions. GameStop has now crashed and gone from $500 to $58.
Let’s go through how and why this has happened for GameStop.
Ian: One of the things were just talking about having to do with the big surge up was actually having to do with options. The third Friday of every month is an option expiration day. People buy options for many reasons, but number one — especially with GameStop — is speculation.
It’s a way of controlling a lot of the stock with a little bit of money. It’s very high risk, high reward. It looks like a lot of people were exercising those options, which means they were redeeming them for a certain price. That means more shares were required to be freed up so they would receive those shares.
That took a toll on the short sellers who had shorted more shares than were available in the market. It caused a rare and unique situation we saw with that big spike. The option expiration date was on January 15 and the 13th was one of the first big spikes where it went from the high teens to around $40 or more.
Then from there it went straight up to the $400s and even hit $500 at one point. I think one of the main reasons is people were claiming these shares because they owned options. The shares weren’t there. There was a scramble from the market makers to get them and there was a scramble from the hedge funds to cover their shorts.
It resulted in this complete crazy situation where the stock went from $20 to $500 in a couple weeks.
Paul: A perfect storm if you will. Just to provide some backstory to this, if you own a call option, which is a speculative bet on a stock, you can ask your broker to actually deliver shares. The alternative is to sell your option and take cash and go.
In the case of this, it seems clear when you look at the chart that some number of people who wrote these options and were on the hook started to anticipate this short squeeze and started to buy up GameStop stock in anticipation of delivering it. Then the week after, all hell breaks loose with GameStop stock.
It does show you how little regular media understands anything. I have not seen this explanation anywhere. We went through the charts. We went through the options expiration and worked this out. So yes, r/WallStreetBets (r/WSB) on Reddit definitely stimulated a lot of people to buy GameStop stock.
However, the actual trigger and catalyst was really options expiration. It does make you question. Now there’s a lot of blaming going on of Reddit and the guy whose name we can’t mention because it contains a profanity.
Nonetheless, he’s an advisor out in Massachusetts that apparently was one of the people who is fairly sophisticated and laid out the analysis. He persuaded a lot of people to get into it. The media focuses on people — stories, in other words — to get you interested. Actually, there’s a mechanical explanation for why this unfolded when it did.
Ian: Exactly. Then it causes misinformation to spread. People get divided and they get the wrong idea. It was a really interesting situation to watch unfold. It can show the background mechanics of how the market works. If you pay attention to this stuff, it’s crazy what can happen.
Paul: If you are interested in Fourth Industrial Revolution stocks, America 2.0 stocks, the stuff we cover on the Iancast like Tesla, cannabis stocks, crypto, check out our flagship service. It goes for around $48. It’s pretty cheap. You can find out more at ProfitsUnlimited.com.
The Importance of Options Expiration
Some of the things that matter are sometimes the things people aren’t focused on. Many people are focused on earnings and think there is some impact. However, a lot fewer people understand there are important events like, for example, options expiration.
Ian: It can cause a lot of volatility. Some parts of the year are more popular to invest in options than others. Big firms usually put a lot of money into options that expire at quarter end. We recently saw this with Bitcoin (BTC). It wasn’t a quarter-end expiration, but it was at the end of January.
A lot of options expired and a lot of futures expired. There were all these highly leveraged positions that went away on January 29. After that, if you look at a chart of BTC, it has pretty much gone up since then. A lot of the options that expired that day expired out of the money.
A lot of losses were wiped out and then funds slowly started to buy back BTC. It’s still going up. I think it’s over $37,000 this morning.
Paul: If you are at home and you are saying, “This is great information, but what do I do?” One thing you can do is simply go to Google and lookup an options expiration calendar. The vast majority of options run on a quarterly basis. There are weekly options but it’s a lot less money in those.
The bigger bets and more liquid bets tend to go toward quarterly expirations. Each stock runs on a slightly different cycle. The big indices like the S&P 500, Dow and Nasdaq are all quarterly expirations and that’s where the vast majority of the money is. It’s something you want to track.
Like Ian said, for BTC, this has a big impact. When the big caps were going up in a big way, the expirations on the futures and the options had a big impact. However, right now, we are in a different moment with respect to the stock market.
The FANG stocks, even though they are making marginal new highs — Google made a new high, Apple eked out a high, Netflix eked out a high right after, but they are struggling to hold those positions.
Ian: And when they make a new high it’s not like they are going to jump another 30% to a new high like we are seeing in the mid and small caps. It’s more like another percent between each new high. When you see that gap between new highs start to slow, in my opinion, that’s a bearish sign in the short term.
Also, when a company starts to get into the trillions of dollars’ worth of valuations, it’s hard to push that up. Some of these companies, the biggest buyers are them. They are doing huge share buybacks. That’s a short-term solution to make your stock go up.
Longer term for some of these companies is not great in my opinion. We are going to start to see those highs turn into lower highs and then go down pretty quick.
Focus on Stock Value Not Price
Paul: So everyone understands, most people who are new to the stock market focus on the stock price. We try to get our readers to focus on stock market value. The greatest example, is Apple. Most people are focused on the stock price. Apple represents more than $2 trillion in stock market value.
To go through the thought process, just think, for it to double it would have to be a $4 trillion company. Just think what it would have to do in terms of iPhone sales or iPad sales for it to achieve that. Microsoft is in the same territory. It’s around $1.6 trillion. Google is the same and Amazon.
Then, just for comparison, something like Canopy Growth in cannabis is — I don’t know offhand — something like $12 billion or $15 billion. It’s like an ant compared to an elephant. These FANG stocks, which Jim Cramer famously came up with, they have gone on a 7-year run.
It does look like in the face of anything attempting to rise these prices higher there is a wall of selling being thrown at them.
Ian: We have mentioned Apple before. They are a standout in share buybacks. Are they going to be able to pour trillions more into the stock? I don’t think that’s realistic.
Paul: Also, as it’s buying shares at all-time highs, its business is just meandering along. They can show earnings-per-share (EPS) growth because they have collapsed the number of shares through buybacks in excess of half-a-trillion dollars. Microsoft has put in a lot of money as well.
Buybacks, by the way, can work if you are buying it at a genuinely cheap price before a genuine acceleration in your business. In other words, where the market is being irrational or unreasonable in terms of what it values you and you have cash on the balance sheet, you buy it up.
However, it does have to be reflective of what is real demand. Anyway, without editorializing more on this, what we are seeing is the big indices are overweighted with FANG and all these acronyms that came out. It does seem to be the end of the line for that particular trade for a little bit.
Ian: As we mentioned before, in the background there are these smaller companies that are .01% the size of these titans and they are quietly surging. I think Canopy Growth is up more than 100% this year. There are some other pot stocks that have done very well.
Some of the smaller software stocks are around $10 billion and everyone is saying they are overvalued because of the price to earnings.
But if you look at overall value of these software and marijuana companies that have high growth ahead for years and years and compare it to some of the bigger ones that are trillions of dollars and have slowing growth, it’s clear to me where the money is going to flow.
2021 Marks the Beginning of 3D Printing Stock Surge
Paul: It’s going to flow, in our judgment, from the FANG world to 3D printing stocks — they are on fire. Those are going up a lot. People think it’s all over. Essentially we are in the first leg of what we think will be a multi-year leg in these stocks where you have the chance to make four-digit returns.
We have been all in on 3D printing. We have sat through some brutal declines in it. We were, with one stock, really early. With another stock, slightly less early. Nonetheless, we are all in across our services.
That’s an example of an entire group of stocks whose value in terms of technology and capability is going to keep rising for a long, long time.
Ian: They have so much farther to grow. $2 trillion for a market cap right now might be equivalent to $4 trillion or $5 trillion. As time goes on, there’s way more money coming into the market. We have seen trillions of dollars sitting on the sideline that are going to push up these prices and overall market caps.
There’s a huge gap that needs to be filled between these smaller companies and these big companies to even out the landscape in terms of where future industries lie and current industries lie.
Paul: Right, which is why this current moment where you see the slowing of gains in these mega-cap stocks is going to continue for some time.
You are going to see layers and layers of these small names and mid-size names where they keep rising for many years until there are layers and layers to the stock market as there used to be before it was so dominated by seven or eight stocks.
Put Your Money Into America 2.0 Companies
We are still bullish, optimistic, positive — BOP — on Fourth Industrial Revolution stocks and America 2.0 stocks. We would tell you if you are unaware of what they are and what we are saying sounds like a foreign alien language, check out ProfitsUnlimited.com.
Also, check into Bold Profits Daily, which is our free e-letter from our publishing company. Ian, myself, our amazing team of Patrick, Tamara, Amber and Nick all write. You can get up to speed and start to understand this transition going on. The five-year anniversary of Profits Unlimited is coming up in June.
We have been telling this story for about five years. Largely, it’s still just us and Cathie Wood at ARK Invest that’s all in on this, telling the story, every single stock, every single portfolio. We are the only two who are all in on this.
Ian: I don’t think it will be the case for much longer. In the next couple of years we will see more and more people start to realize this. Eventually, this trend will be too big to ignore. It’s like how we are seeing billionaire endorse BTC and realize it’s a revolutionary monetary technology that they discredited before.
To their point, when it was way more obscure before and hard to find information, you could make that mistake. But now we are starting to see them do a 180 in terms of BTC and crypto in general. I think it’s going to be the same way with America 2.0 stocks.
Paul: I have been seeing more and more people, including Elon who put Bitcoin next to his name on Twitter and generated a pump. We would never tell you to buy long just because someone puts something like that in.
Let me finish off on the stock market. We think there is going to be more and more of this. There’s obviously older tech names like Apple, etc. which we think are done with their high-growth moment, partly because of how big they are.
Then we have layers and layers of Fourth Industrial Revolution and America 2.0 stocks that are just beginning their ascent. They can go up, in our opinion, for five, seven or 10 years and can generate thousands of percent of return. If you are interested in that, check into ProfitsUnlimited.com.
Please, do not misunderstand us. We are not positive on companies like ExxonMobil, Wells Fargo and their kind of companies. We are BOP only on America 2.0 companies, Fourth Industrial Revolution companies.
The BTC Bandwagon
Elon is on the bandwagon for BTC.
Ray Dalio is on the bandwagon for BTC. It can only mean that they are all either secretly buying, or maybe not so secretly, buying BTC.
Ian: It wouldn’t surprise me at all. I don’t think Elon would have to disclose his private holdings of BTC. So it wouldn’t surprise me at all if Elon had been buying BTC for quite some time. He’s a futuristic guy and understands technology. I can’t prove any of that, it’s just a theory.
I have seen quite a lot of people, big names in finance, that you never would have thought a couple years ago would like BTC. Big banks are starting to put out bullish forecasts. There’s a whole narrative spin where Guggenheim said a couple weeks ago there wasn’t enough institutional demand to carry it above $35,000.
Then a couple days later it went above $35,000 and the same guy said he thinks it could hit $600,000. So there’s that whole aspect to. Overall, the sentiment has done a total change by going from way bearish to way bullish.
Paul: In between all that is the fact that Guggenheim Partners, a big asset management company, their chief strategist said when BTC was going up in a straight line it was going to $400. Then he said it was going back to $20,000. Then he said it couldn’t go back over $40,000. Now it’s going to $600,000.
As you can tell, following this person would confuse you a great deal on this. Following other people and what they say on BTC, who knows? We on the other hand have been consistent on what we are saying about BTC. If you go back and track on our channel we have been talking about BTC from 2017 on.
We went through what, at the time, seemed like a bubble. We have been positive on BTC since what seemed like a bottom and have been positive ever since. Ian, you have a two-layered forecast for BTC. Go ahead and give folks what that is.
Ian: I think BTC is going to hit $115,000 by August of this year. I think over this bull run, which could last anywhere from a year to two-and-a-half years, I think BTC is going to reach $350,000 per coin.
Paul: I believe BTC in the next one to three years is going to get to $250,000 minimum. Then go ahead and give your prediction on Ether (ETH), which is often referred to at Ethereum as well.
Ethereum (ETH): The BTC “Alt”
Ian: I think that will hit $8,000, at first I was saying by the end of next year, but it could be sooner. It just made an all-time high. That for crypto is a bullish thing. I think it was in 2017 or early 2018 where it hit $1,400. It just crossed that over the past week.
Now it is almost to $1,700. $8,000 I think is doable by the end of the year at the latest.
Paul: I believe that ETH can hit $4,000 by the end of this year. That’s based on our understanding of what is going on with the projects that are on the ETH blockchain and how much usage there is going to be of this currency.
And then there are a number of developments going on with the crypto itself. There is a new version coming out that’s scheduled to come out pretty soon that is going to increase usage of it even more.
Ian: Exactly. And ETH has already had a huge amount of adoption. I have compared it to Android where you can build all these apps on it. Right now, these apps are mostly financial. It’s all decentralized. There are crypto exchanges on there and apps where you can lend and borrow money in a decentralized way.
This has become popular, especially with the whole Robinhood thing and GameStop and the limiting of the amount of stock customers can buy. This year alone we have seen the amount of money put into these ETH apps grow from $26 billion to $34 billion.
When ETH is able to scale more, because one of the things holding it back right now is transaction fees — when you go to trade crypto on an ETH app, it’s expensive. I consider $34 billion in there a bullish thing considering the fees are so high.
So when it’s able to scale more and create apps that have lower fees, it’s going to drive way more usage. Also, it’s not even close to being in the mainstream yet. Almost nobody has any sizeable position in ETH. I think there are only 1.1 million addresses with 1 ETH in them and a lot of people have more than one address.
That means even fewer people own that much. I think the future is bright for ETH. These developments within it are going to drive up adoption like crazy and more people are going to realize it even exists.
Paul: It’s unlikely that there is going to be a huge number of people because there’s barely anybody who owns BTC. ETH or any of these other currencies has to be owned by a tiny sliver of people out there. We are planning to release a crypto service later this year. We have settled it with our publisher.
Ian, before we got on today you were talking about this notion of BTC dominance and how there is a cycle between BTC and what are called alts.
ETH is the biggest one of the alts, referencing alternative currencies or alternative cryptos. Tell folks a little bit what you were telling me.
Ian: BTC dominance is the ratio of the BTC market cap to the whole crypto market cap. Out of the entire crypto market capitalization, which is the whole value of all cryptocurrencies, is $1.1 trillion. BTC is 62% of that. In the last rally, the big one in 2017, BTC dominance dropped to 33%.
That’s half of what it is now. I think we will see a lot of rallies in alt coins. BTC we believe is going to go up a lot, but ETH and some of the smaller coins I think are going to take a lot of the market share. A lot of them are very, very low market caps.
I think there is room for them to grow alongside BTC. We are going to see a lot of things rally big time.
Paul: I know many people will panic and say, “Does that mean BTC is going to crash?” No. It’s kind of like what we were talking about with the stock market earlier. BTC is very large relative to everything else, it’s going to go up, but some of these much smaller ones which have values in the hundreds of million can go up a lot more.
This is the reason why we went to our publisher and came up with the idea to start a crypto service, so we could show some of these and show some of the analysis we are coming up with for these other coins. There is going to be a world of development that is, right now, most visible on the ETH blockchain.
However, there are others. There are people who have built a mixture of business, cryptocurrencies and all these things that are going on with so many different things in crypto. BTC’s percentage of the market share is going to go down even as its price goes up because the other ones are starting where BTC was. They are at the beginning stages.
Ian: When ETH first started in 2016 it was a few dollars per coin. Then, by the end of 2017, it hit $1,400. So some of the smaller ones could very well do that exact same thing. Even as BTC dominance was going down during that 2017 rally, BTC was still going up a ton.
A lot of people made a lot of money from that. I think it’s going to be something similar. There is still tons of money to be made in BTC. I just want to make that clear.
Paul: We are BOP on BTC, ETH, crypto in general. I sent you an article talking about how someone worked out how to refi their mortgage using crypto. There’s an explosion of innovation and adoption going on in crypto that is looking like bad news for the old financial world.
Ian: One of the things I saw recently was one of the big DeFi apps is actually releasing a credit card. They teased it, but it would not surprise me if this was a development coming soon. You would be able to use a credit card on a decentralized platform, which would be a first.
Paul: I have noticed mainstream, old world companies like Visa starting to talk about putting BTC on their network. They are trying to very quickly get on the crypto bandwagon. I am sure they are going to fool some people into going and buying their stocks.
However, our experience is that those companies never make the jump.
Ian: If they at least try that is going to mean even more for BTC. We saw PayPal buying a ton of BTC. I wouldn’t complain if they did it.
Paul: This is true, they are going to act like pipelines into crypto. We would tell you to get the big benefit and the big gains, you have to own one of the cryptos themselves. The old world companies are never going to make it. It’s like Macy’s and Sears.
They could see what they needed to do, but their organizations were centered around a different way of doing things. They could never make that jump. Amazon, there was no jump they needed to make. They were online always. All their systems were always optimized for that.
It was easy to grow into that. Versus someone who has to change all their processes and businesses. Anyway, that’s a long story short. We’ll say we’re BOP on crypto. We have laid out the upside for BTC and ETH. It’s also in Profits Unlimited, which you can go to ProfitsUnlimited.com to access.
Cannabis Stocks Continue Surging Higher
Ian: We mentioned Canopy before, that’s an example of a big one. Even some of the smaller ones are up more than 100% this year. My prediction for cannabis was that the ETFMG Alternative Harvest ETF (NYSEArca: MJ) was going to hit $40.
It’s already done very well. It’s well over $20 at this point. I think it’s entirely possible. This is going to be redemption for me from last year when I said it was going to double, which it did not. This year I am confident that it will hit $40.
Paul: There is a benefit to having a prediction go slightly wrong. The people who believe in it and understand it get to buy it cheap. We never went off that prediction because the basis for it never changed. We never saw any shift in terms of the underlying thesis for that trade.
We continued to say that the stock prices were declining, but the companies and businesses continued to improve themselves.
Ian: For sure. I am seeing a lot of new partnerships. There have been big acquisitions within cannabis. This is still a rapidly growing, tiny market that has a ways to go. It’s going to be years, if not decades, of high growth ahead.
Paul: I saw this article from an excellent source, mjbizdaily.com, which says that in 2021 in January alone there has been $1.6 billion in capital raises in the cannabis sector. Just for comparison, in 2020 the amount raised was a smidge of that.
If they were to compare the two weeks in 2020, $245 million dollars was raised. The first two weeks of 2021, $619 million has been raised. That’s a reflected in all the cannabis stocks. They are all pretty much going up.
Ian: It’s a wave we have been looking for for a long time. I think it’s way overdue. A lot of people were short cannabis stocks, so they are having to cover. There’s a lot of people who are going to buy in who wouldn’t have before because of the law of demand at higher prices.
There are all these underlying things at play here that are going to boost demand even more for marijuana stocks in the near future.
Paul: You can go back and track us back on the channel where we have talked about MJ the pot ETF for a long time. We have taken a lot of heat for being wrong on this, but this is our time and we are right. I believe that the future is bright. We had a brutal bear market, 80% declines.
Cannabis stocks are in strong hands. They have funding. More money is being thrown at them now as everybody wants in. I believe the outlook is really good. You can check in Ian’s forecast for the stock. We would say MJ is still a good bet.
Ian: Absolutely. Huge upside.
Paul: Also, if you are interested in actual single stocks we focus on, again, ProfitsUnlimited.com is the access to our flagship newsletter. You can check into that. We have a number of other services. We have a small-cap service and a mid-cap service — we have pot stocks pretty much across the board.
Just like 3D printing, we are all in on cannabis across our service. We are BOP on those stocks. Now to Tesla. Amazingly after a 700% year in 2020, it’s up 20% in 2021.
Ian: It just keeps going up. I think it’s more than $800 billion in market cap now too.
Paul: People wonder what is going on. Well there is a release of their self-driving software that I think is a game changer. There was an interview with Elon Musk — you have to give the guy credit. He shows up and does interviews with people who critique him.
He sat down with Sandy Munro for more than one hour. The first thing Sandy does is talk about the production quality of some of the early Model 3s. Elon says we heard your criticism and we thought a lot of it was right. How many people would say that?
Ian: Not many.
Paul: I think zero other than Elon Musk. Then they went on to discuss a number of things including new batteries, some of the new form factors. I was listening to that and it was a cash register going on in my mind. It’s going to be cheaper to make these new cars, the batteries are going to have higher ranges and are also cheaper to make.
Then Sandy Munro talked about the huge leap in the new software to run the new cars. I have a Tesla but I have not actually gotten this update because it’s still in beta. But it does look like this is an extraordinary jump. This is maybe 10, 15, 20 steps better than before.
Ian: Right. And that adds a lot of value to them because software might be expensive to build but once you have it the costs are minimal. That’s another reason we are seeing a big jump in the stock price. Software is a really high margin business to be in.
You can make a lot of money without spending much after the up-front costs.
Paul: Elon has said that he has considered licensing this to other EV makers. I really recommend people go watch this interview because at the very end you realize this is a very caring man. He nearly teared up at the idea that in excess of one million people die in auto accidents.
People talk about lots of things as to how you can save lives. Having cars that can drive and operate safely is a game changer. Apply it around the world and it transforms humanity. We are BOP on Tesla. Nonetheless, understand it went up 700% last year. This year it has gone up 20%.
If you are expecting another 700% run in 2021, we believe that is unlikely. There are still enough catalysts in Tesla for it to keep going up between its energy business, its software development business which will facilitate robotaxis.
Bottom line, we are BOP on all the things we usually cover on the Iancast: Fourth Industrial Revolution and America 2.0 stocks, BTC, Tesla, cannabis.
Editor, Rapid Profit Trader