MorningWord 12/20/16: Dow 36,000

by Dan December 20, 2016 10:56 am • FREE ACCESS

Back in the late 1990s, the higher a tech stock went, the more bullish sell side analysts and investors would get. And in many instances, analysts would set ridiculous price targets that quickly turned out to be not that ridiculous, as the stocks made a beeline for the number. Oh, and once a stock traded $80, it was sure to trade $90, and then $100 within days as that big round number proved irresistible for traders no to kiss. There was nothing fundamental about the price action, it was completely psychological. Animal spirits had taken over and trading firms would have been better off hiring club promoters rather than finance majors. This is not to be confused with the “fear of missing out” of our current market environment. Today seems much more sane in comparison.

Back then, it was sport. Driven by humans, not algorithms. And there were many more hedge funds employing short term trading strategies than there are now. It was the wild wild, before most traders had tricked out trading technology on their desktop, and relied on market makers hiding behind wide big ask spreads in response to the volatility, and in yet another example of market inefficiency, added to the volatility. This was a time before Reg FD, and information was a different sort of commodity than it is now, with the big banks providing liquidity, research and deal flow, as well as being at the nexus of this flurried trading.

Which brings me to the present. Today Goldman Sach’s bumped their price target on shares of Nvidia (NVDA), placing the stock on its Conviction Buy List:


To be fair, GS’s analyst Toshiya Hari is not some Johnny-Come-Lately to the NVDA story, he has consistently been raising his price target in moderate increments since the stock was in the $50s in June. But after a massive run in the stock, for some reason today he had a flashback to the late 90’s and chose to get more aggressive after the run.


This is something to keep an eye on in general. The market is years deep into a bull market run. And now there’s a sense that steady climb higher could turn parabolic. If that turns out to be the case, expect price targets to suddenly get more aggressive, then eventually ludicrous. And expect volatility to increase as stocks go higher, not the typical other way around, as psychology takes over and fundamentals no longer matter. We also know how it ends. And we remember those $1000 price targets.

Hari better hope NVDA goes straight to his target, or his 40% bump in a stock already up 200% on the year, (and at all time highs) will be an analyst call long remembered.