Mini-Manias: Beware Short-Term Trading Frenzies – Like This One

 

This company reached a market value four times higher than that of GM

By Elliott Wave International

Most investors know the meaning of a "mania," i.e., the "Tulip Mania" of the 1600s and more recently, the mania surrounding technology stocks in the late 1990s, etc.

As you might imagine, these manias usually occur during rip-roaring bull markets.

Yet, some "manias" may unfold even during bear-market rallies, and when these "mini-manias" end, they can burn investors just as much as those full blown bull market manias.

For example, consider VinFast, an electric car maker based in Vietnam. The company debuted on the NASDAQ on Aug. 15. Just a week later, we had this headline (Reuters, Aug. 22):

VinFast shares more than double to highest since market debut

The price of the shares went on to much more than "double" in a very short period of time.

Our September Elliott Wave Theorist, a publication which has provided analysis of major financial and cultural trends since 1979 offered this perspective:

 

 

The [Elliott wave] rallies peaking in 2023 have had their own mini manias...

As you can see in the chart, a money-losing electrical vehicle company operating out of Vietnam became the sudden focus of an impulsive buying spree lasting only two weeks. But what a spree it was!... VinFast reached a total market value higher than that of McDonald's and four times higher [than] that of GM. The stock topped... on August 30.

Investors who believe in the future of electric cars went out on a limb pricing VinFast where they did. None of the bidders did any research. They just pressed buy buttons because others were doing it.

Indeed, as a Sept. 9 Bloomberg headline noted:

VinFast's 504% Rally Burns Traders Playing Greater Fool Theory

Also, since the September Theorist published, VinFast's share price has continued to plummet.

But what about the broader stock market?

Well, as history shows, dramatic price moves can happen with the main indexes too.

Elliott wave analysis can help you anticipate these price moves.

If you’re unfamiliar with the Elliott wave model, read Frost & Prechter’s book, Elliott Wave Principle: Key to Market Behavior. Here’s a quote:

The practical goal of any analytical method is to identify market lows suitable for buying (or covering shorts) and market highs suitable for selling (or selling short). When developing a system of trading or investing, you should adopt certain patterns of thought that will help you remain both flexible and decisive, both defensive and aggressive, depending upon the demands of the situation. The Elliott Wave Principle is not such a system, but is unparalleled as a basis for creating one.

When investors and traders first discover the Elliott Wave Principle, they're often most impressed by its ability to predict where a market will head next.

And it is impressive!

But its real power doesn't end there; the Wave Principle helps you identify when a market is most likely to turn. And that gives you guidance as to where you might enter and exit positions for the highest probability of success.

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