Nasdaq Gains but Investor Knocks “Young and Dumb” Trader Valuations

The Nasadaq was over 1% higher on Friday as the index tries to reverse a three-day pullback but fund manager Cole Smead sees a “nightmare” in valuations. The president of Smead Capital Management told CNBC that “young, dumb” investors have created a “total nightmare” in the stock markets.

Smead used an example of risk-taking in the options market to explain his point:

“They are buying bullish call options that expire inside two weeks. There was ($500 billion) of bullish call options bought in a four-week stretch by small retail traders. In ’99 it was $100 billion, in ’07, it was $100 billion.”

The fund manager also pointed to Microsoft’s valuation to summarize his negative outlook, saying, “Microsoft is a wonderful company. But at 40 times earnings, there is a 0% chance of that producing wealth for someone over the next 10 years that will meet their needs.”  

U.S. stocks are higher after retail sales and consumer sentiment figures boosted the economic outlook. Retail sales were the standout after a gain of 1.9% for September compared to analyst expectations for an increase of 0.7% gain. This should be enough for markets to hold a bearish tone into the weekend.

Nasdaq 100 Technical Outlook

The Nasdaq index pulled back from the 12,200 level on Tuesday and is looking to retest that level. If the market can close above 12,100 then it should be enough to propel the index to the record highs set on September 2nd. A bearish close near the 11,800 level will open up a retest of the support level at 11,550. The Investing Cube team is currently available to help all levels of traders with the Forex Trading Course or one-to-one coaching.  

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Nasdaq Daily Chart

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