Today I’m going to give you a little bit of a treat on this video. I always try to do the videos with material that lies outside of our newsletter and our blogs. So this is kind of a treat because we’re going to introduce a concept that I have recently written about in my new book on contrarian investing. The book is called Smart Money Dumb Money – Leading the Crowds through Contrarian Investing. My second final chapter in the book is called non-traditional contrarian investment tools. And in it, I explore a number of investment tools that in many cases are being used by the most sophisticated traders in the world. And what’s interesting about these tools is that while some of them true, you would have to pay some of the services to get the data feeds (and in fact, we at ValueTrend have begun now actually paying for some of these data feeds ourselves) but some of these tools and I list several of them are completely free and available to you the retail investor.
Using Google Trends
So, I think you’ll find today’s lesson, if you want to call it that, interesting because it’s a tool that you and I can access for no money down and it’s not a bad tool to spot super overblown situations. It’s not a tool to find situations that are undervalued or ready to buy. Let’s pretend that you had a position in a high-flying stock or a high-flying sector. You might want to access this tool that I’m going to introduce today, which is again, only one of the tools I’m talking about in my new book, which will be released in July.
You may want to access this tool if you own a stock that has done very, very well and seems to be getting an awful lot of good press and attention. And it just seems to be getting a little bit rich. You can look at this tool and get a rather good indication that the stock or sector that you’re invested in is high probability going to have some downside ahead of it.
I am going to show you how to use the Google trends tool. Now, this is a tool that you can use for many different things, but us as stock investors, we can use it to find out if people have become too enamoured with the stock.
I have four examples here, and I’m going to start with my favourite whipping boy, anybody that reads my blog knows that I called Tesla’s stock. And again, it was another decent call. And one of the tools I use, not the only tool, but one of the tools that I used was a confirmation of the Google search trends, a pattern on Tesla just before the peak.
Let’s look at the stock. The first thing we’re going to do is we’re going to look at the Tesla stock. And what you can see here is Tesla peak. Early ‘20, it hit another peak and soft period around August of ‘20 and then a final peak. And it looks like it’s really kind of starting a downtrend now. So I don’t think it’s got much near term upside anyway. So, the final peak was early ‘21 this year.
This is how you use it. You type in TSLA and then because it’s a stock you want to hit, see, this tool comes right up and will say, oh, do you want the NASDAQ symbol for Tesla? Yes, I do. So, if we look back at that chart, we were just looking at, you will see that there was a peak in early ‘20. So, in February ‘20 you remember on the chart, Tesla peaked and then fell. Guess what? The number of searches we’re doing search inquiries right at the peak of this stock Tesla were very, very high. Now 100 is the level of the most searches that’s ever been done in the stock. So this is the ultimate peak in search inquiries occurred. And when to try to get our little bubble lined up here, but it was, it was actually the end of August of ’20.
Now you remember looking at the chart a minute ago, that was a peak. I mentioned it was August of 2020. Now the most recent peak, which was the beginning of this year, there’s December ‘20. So it was right at the beginning of this year. So, at the end of February, roughly wasn’t quite as high as the all-time search back in August of last year, but it was still another high level. You can see levels prior to that were lower. So we got a pretty good indication. And when we combine this with technical indicators, if you read my blog, you’ll know that I did a scathing write up on Tesla, right in February of this year saying, I think it’s peaking because it was way over its 200 days moving average. And the search inquiries were peaking again, maybe not as high as they were last August, but they were high.
So it’s a very valuable tool that if I happen to own Tesla and I had seen that it was off, it was deviating off of its mean average search inquiries by a spike. I would probably be inclined to sell it if the technicals were overbought. And, and that was the exact case, which I did point out in my blog. I did in fact, recommend selling Tesla early in the year.
Now let’s look at Bitcoin, which is another one of my favorite whipping boys. And I’ve been adamant that Bitcoin is goofy. I think it’s a sign of speculation in this market. We’re going to look at the history. I want you to keep these dates in mind. You’ll see.
Late 2017, there was a peak in Bitcoin before it crashed and burned. Then we saw around the summer, July or so of 2019 crashed and burned. And then the most recent peak in Bitcoin, early 2020. Let’s call it February. Okay. Keep those dates in mind. Late ‘17, mid ‘19, early 2021.
Let’s now look at the Google search. It’s free. Now you’ll notice it comes up with lots of different things. Bitcoin currency, Bitcoin, the term let’s just try Bitcoin. And it provides what we’re after. Son of a gun late ‘17 before that first initial pretty large crash and burn. Yeah, it was the all-time high-end search inquiries on Bitcoin. Okay. And what happened? The stock went down a lot after that, but I think if I recall this down by two-thirds of its value, right after that, no more search inquiries.
When the stock was poorly performing in 2020, right around the middle. Okay. There’s the middle of ‘19. I should say there was a small peak, so it wasn’t so valuable there. But as we came into the beginning of this year, February of ‘21, I mentioned that was another peak point. You saw that the inquiries on Bitcoin were exceedingly high early this year. So again, it didn’t work so well in 2019, although there was a spike, but these two times definitely pointed out that the market was too high on Bitcoin. And again, I blogged on this because you must combine this tool with technicals, but when you have very overbought market way over its 200-day moving average and everybody and their brother is searching for the term Bitcoin or Tesla, or what have you, you have a potential for a major market meltdown. And that’s exactly what happened in both late 17 and early 2021. We’ve seen corrections both times.
Let’s look at another example. Isn’t this fun? We’re going to look at inflation because as we know now, ValueTrend, if you follow and like my blog and the newsletters that we send out, we were really early on the game getting into the reflation stocks. Okay. So when everybody loved the Fang stocks and Tesla and Bitcoin and solar stocks and EV and all that, we were literally selling this stuff and buying into oil, which everybody hated. And it was something like 40 bucks a barrel. We were buying metals. We were buying, any of the commodities that you might think of. And of course, that trade turned out to be particularly good.
Everybody’s now talking about inflation. ValueTrend is a contrarian firm that’s why I have written the book. We’d like to try to think outside of the herd. And right now the herd is talking about inflation. So I am going to pick up one of the areas that we’re actually still invested in other, we have been paring back and that is if you’ve been reading my blog, you’ll know I’ve been paring back on materials. So we still have base metals. We still have oil and gas. We still have fertilizer stocks, but they’re high they’re over-bought. And you can see that on the iShares US materials sector. It’s an ETF and this thing is out of control. It’s gone fairly parabolic.
Now let’s look at the word inflation because that’s suddenly on everybody’s mind it wasn’t on everybody’s mind.
Now, look, what happened is that inflation hit its peak for after this is five years where the data is, you know what? I’ve been talking to inflation for five years, but suddenly everybody’s talking about it this year. In fact, very, very recently. Right around April. So you see, it’s falling a little bit to the inquiries. And that leads me to wonder if the sector is a little bit overbought, which is why we didn’t sell all our position, because we do still believe in the inflation rate, but we know that the stocks are a bit overbought.
So, Craig and I at ValueTrend, we reduced, not eliminated, our positions in materials. And we moved into some boring stuff like staples and dividend-paying stocks. We even bought a utility. These are boring stocks that pay dividends, but we felt that our inflation trade is literally doubled and tripled in some cases since our August purchases are a little overdone. Okay. So you can see that the crowd got really excited about the idea of inflation and it was not so excited when we were buying back in July, August. There’s where we were buying. Nobody was talking about inflation back then. Okay. So we’re contrarians. This is what we do.
The last one, and I thought this would be kind of fun because this is very timely. Everybody’s talking about the Robin Hood investors and they’re on social media platforms and they talk about which stock they’re going to go after next that’s been shorted, and AMC has been in the news. Son of a gun, AMC search inquiries are very high right now. In fact, they were high around February, and they were hot, they’d been right now. As of this date, they’re extremely high. The dotted lines are showing that it’s not the end of the week. They do it by the week. So what I’m showing you here is that AMC had absolutely no inquiries for five years and suddenly everybody’s all over AMC. And this lines up with the stock. So, you can see that the stock’s been a dog’s breakfast. And then early, remember that first peak in inquiries, early 2021, January, February, you got a spike in the stock it and did fall. You saw the inquires fell a bit, and now we’re having another resurgent as you just saw in inquiries. And the stock is just parabolic.
What this tells me is that everybody in their brother’s searching AMC because the thing’s been on fire. And they’re wondering when it is going to end, when the game will end. It’s not a very profitable forward-looking business compared to some of the other stocks you might be wanting to look at right now, but it’s got momentum. Buyers are not buying the stock for its wonderful fundamentals or its future growth prospects and its ten-year plan and all that stuff. They’re buying it because they’re trying to squeeze the shorts. So this will end. And when the inquiries on Google end that I believe will be the end of the rally here.
So, I’m getting a picture. When I look at those Google search trends that it’s all over, everybody all over the world is searching. AMC, want to trade it. And it’s getting overdone because if you’ve ever heard the lesson about dumb money, it’s when the dumbest person, dumbest investors bought that’s when the trade is over. So there’s going to be a point where everybody’s talking about it, and finally you get the dumbest person than ever buying the stock. And that’s when the trade is over. Greater fool theory. I believe it’s called. I talk about that in my book.
So that is it for today. We’re going to wrap that up and I hope you got a little bit of information on spotting, overbought stocks. And as I said, it’s just one of the tools that I talk about in my upcoming book. I’m really hoping the book is released in early July. And I’m very excited about it. I think it’s probably the best book I’ve written out of the three books I’ve done and many blogs I’ve written. I really put my heart into it. I did an awful lot of research and I’ve honestly talked about things that I think many books and investors are completely unaware of as tools that you can use to profitably invest in a contrarian manner.
