Michael Burry Is at It Again

Editor's note: Short seller Michael Burry is famous for his bearish calls. But according to Vic Lederman of our corporate affiliate Chaikin Analytics, you might not want to take Burry's most recent crash prediction at face value. In this piece, recently published in the free Chaikin PowerFeed e-letter, Vic explains why looking "under the hood" reveals a different picture...

Folks, Michael Burry recently warned of a stock crash reminiscent of 2000 – again...

This time, he claimed that the tech-heavy Nasdaq 100 Index is due for a "dramatic reversal." Burry cited the recent "parabolic" surge that drove the valuations of tech stocks sky-high.

Burry put the Nasdaq 100's valuation at 43 times earnings in his warning. As he said, that's far higher than the implied level of roughly 30 times.

As you can guess, Burry cited numerous other reasons investors should feel nervous.

However, Burry's claims may not be as dire as he makes them sound...

Burry's Strong Claims Stoke Investor Fear

Burry enjoys making bold claims with vivid imagery. Here are a few examples from his recent warning...

• The Nasdaq 100 is the "scene of the bloody car crash, minutes before it happens."

• Not selling and taking profits "is betting on one's own ability to jump off at or near the top."

• "History tells us that even if the party goes on for another week, month, three months or year, the resolution will be to much lower prices."

Of course, we know the stock market doesn't move higher in a straight line. Markets rise and fall.

But looking beyond the fearmongering headlines about this new warning, Burry's claims that a crash will come anytime within a week to a year are too broad. And they're meant to incite fear of losing vast amounts of wealth.

It's almost like a weather forecaster telling viewers there will be a deadly storm sometime this summer.

Simply put, there seems to be something deeper at play here...

You see, Burry disclosed in his warning that he holds a "significant leveraged short position" against a group of companies.

That means Burry makes money as these stocks fall. And if investors heed his warning and sell, these stocks may fall further – and faster.

No investor wants to imagine their portfolio as the scene of a "bloody car crash." It's critical to separate emotions from the facts.

And as it stands right now, I'm skeptical about Burry's call that the Nasdaq 100 will fall completely off a cliff. To show you why, let's take a deeper look using the Power Gauge...

The Power Gauge Is 'Very Bullish' on the Nasdaq 100

The Power Gauge is a tool we use at Chaikin Analytics. It gathers investment fundamentals and technicals into a simple rating of "very bullish" to "very bearish." It's a simple way to look "under the hood" with every tool at our disposal.

We track the Nasdaq 100 in our Power Gauge system through the Invesco QQQ Trust (QQQ).

Since the start of the year, this exchange-traded fund is up about 14%. That's almost double the growth of the State Street SPDR S&P 500 Fund (SPY), which we use to measure the broad market.

Two major factors stand out to me here...

First, QQQ currently gets a "very bullish" rating in the Power Gauge. Put simply, our system still sees upside ahead for the fund.

Second, the fund's Chaikin Money Flow is incredibly strong. In fact, last week, this measure of "smart money" buying activity on Wall Street hit its highest point in 12 months.

Take a look at this chart of QQQ with some data from the Power Gauge...

Notably, the massive smart-money support is encouraging. An immediate crash for any investment with this much smart money behind it is rare.

This isn't to say that QQQ – or stocks in general – won't take a breather. Pullbacks are just a part of markets. And as we all know, things can change fast.

So while you might think Burry's claims mean a catastrophic crash in QQQ and tech stocks is right around the corner, for now, the Power Gauge disagrees.

Good investing,

Vic Lederman

Editor's note: For 60 years, Marc Chaikin's Power Gauge has flagged some of the biggest stock winners in history. Now, on May 28, he's teaming up with master trader Jonathan Rose for the first time ever. Together, they'll unveil a brand-new "Smart Money Super-Signal" that's designed to take advantage of market uncertainty... and give you 10 chances to double your money over the next year.