Spotting Major Market Tops
Michael Burry has returned.
I hope you all had a great Monday! This will be the third educational piece in my series of educational articles that I plan on releasing. The first three were focused on Stage Analysis , Long Term Investing, Position Sizing. If you missed those, you can check them out by clicking on the article titles here.
After what feels like years of dormancy, Michael Burry emerged out of the darkness with this post AND a newly filed 13F (both pictured below):
Michael Burry now officially has puts on both Nvidia and Palantir.
Michael Burry is known as the man who bet against the financial system and won. He profited from the collapse of the housing market and once he got a taste of that infamy, he and others like him have been chasing that feeling ever since. He’s become almost mythical, a symbol in finance. THE symbol of betting against bubbles and shorting. His story is romanticized because it represents something people crave in markets… the idea of not just being contrarian, but early, right, and remembered. He is still chasing that same euphoria, calling tops and trying to recreate his masterful short call at the top of the market in 2008.
Look at the dates of the above posts. The market has gone on a generational bull run since then.
If you’ve been online, you’ve probably noticed how every single day someone’s calling for the top to finally be in.
“This is it.” “The bubble is about to pop” “The top is near.”
Everyone wants to be the next Michael Burry.
For those who don’t know what “The Big Short” was, I’ll go over it quickly. It was a bet against the U.S. housing market before the 2008 financial crisis. He noticed that many home loans (called subprime mortgages) were being given to people who couldn’t afford them. Those risky loans were bundled together and sold as safe investments called mortgage backed securities. On the surface they looked solid but when Burry looked underneath the hood, he saw rot.
He came up with a way to profit if those loans started to fail. He went to major Wall Street banks and asked to buy something called credit default swaps, which were like insurance policies that would pay him if the housing market collapsed. The banks thought he was wrong and were happy to take the opposite side of his bet. When people began defaulting on their mortgages, the housing market fell apart and those “safe” securities lost nearly all their value. Burry’s strategy made hundreds of millions for his investors while Wall Street suffered massive losses.
Truth is, the odds of doing that again are almost zero. You don’t recreate that. It seems like everything he does is now viewed through that lens, as if every bull market is the next “Big Short.” He’s chasing that high again. The difference is that he wasn’t betting against a bull market for the sake of being a contrarian, he was betting against the housing market backed by data and tons of research. Could a scenario like this emerge again with this AI bull market? Yes. Maybe if we start to see more and more companies taking out debt to finance datacenter buildouts, but on the surface an “expensive market” and “bubble” is rarely enough to bet big on the short side.
The market doesn’t care who sounds the smartest or who gets to say “I told you so.” It only cares about reality. And reality is that tops take time. They form slowly. It’s hard to nail the exact top tick but it’s not impossible to recognize when you’re in a topping process. There are patterns that repeat every cycle. Losing key moving averages, leading stocks being knocked down, etc. The point of this article is to help you recognize when the market starts to truly change character. There’s a big difference between predicting a crash and noticing the signs of a potential crash. Every bull market ends differently but they all share the same fingerprints.
In this piece we’re going to focus on how to spot a top using technical analysis and narratives with real examples from 2000 and 2022. We’re also going to discuss exactly what I’ll be looking for to determine when this AI powered bull market is ending. Nobody wants to be stuck holding a bag, I’m going to help you avoid doing so.