'Sell in May' come in early

After a very short 3 days rebound since my last article, "Sell in May" theme come in early. Nasdaq lost 4000. With Russel and Nasdaq lost nearly 5% YTD (worst performing indices). 

In my first article of 2014, I mentioned that nasdaq, small caps, Japan are most owned indices. It turns out that these are worst performers of 2014. Matching the theory that crowded trades are worst trades.

I also mentioned that FB/TWTR/NFLX/AMZN/TSLA/SCTY/CSIQ etc. are largely overvalued several times. Let's see the return off their high

FB: -20%
TWTR: -40%
NFLX: -29%
AMZN: -26%
SCTY: -35%
CSIQ: -42%
TSLA: -22%

Even after these sell offs, these names are still overvalue. For example, NFLX needs to fall to $200 before we can even discuss about valuation. If use Price to Earning, LNKD is at 718x, AMZN 558x, NFLX 140x. Valuation of these names are still ridiculous. 

For FB, recent acquisitions are also ridiculous. You can compare that with AOL purchase Time Warner in .net bubble era. 

Back in Dec 2013, the high light is "Big rotation from bonds to stocks is going to happen", "Bonds are more riskier than ever", etc. In just 4 month, the theme changed entirely. 

Investors confidence in FED is collapsing really quickly. 

Again, we have to look at DQ. Recent hot sectors they discuss are Solar, Social Media, Bio-tech, etc. Once again, it approved that any hot topic appear in DQ will turn out to be disaster. 

The shift from growth to value has just started. And may have a long way to go. Stock market's uptrend is still intact. It is still not the time to sell everything yet, however what you own will really matter in 2014.

Mid term election will kicks in soon. That will bring more volatility into the market. So before Oct 2014, I would expect major up and down swings in the market which will make trading very difficult. If you have enough cash, you will remain powerful. If you pay attention to valuation, you will get hurt less. If you are discipline, you will survive. If you hedge and protect properly, you will prosper even in this market.