Our general rules for shorting: In a bull market only short frauds, and even then be aware that what you think you are seeing may take quite a while to become evident to the wider market. Or may prove to have been an hallucination on the part of the prospective short seller.
In a bear market you can expand your shortable universe by also using shorts based on valuation.
Here are three names to keep in mind as valuation shorts should the overall market begin to crack sometime in the next year or two. From MarketWatch, December 11:
Shares of three tiny companies have seen enormous gains over the past few months
A trio of quantum-computing stocks has seen huge gains over the past few months, bolstered by a wave of hype from retail investors looking to cash in on what could be the “next big thing” in tech.
Shares of Rigetti Computing Inc, D-Wave Quantum Inc. and IonQ Inc. — all small-capitalization stocks closely associated with quantum computing —have gained 843%, 455% and 398% in the three months through Tuesday’s close, FactSet data showed.
The Defiance Quantum ETF — which invests in a number of mature and developing companies involved in quantum computing and machine learning — has gained more than 30% over the same period.
For shareholders of these companies, the gains amount to only a few billion dollars’ worth of value creation. Still, a steady drumbeat of new developments, coupled with their strong performance in the market, appears to have piqued investors’ interest.
The latest market-moving announcement landed shortly before the closing bell on Monday, when Alphabet Inc.’s Google Quantum AI unit published what some experts characterized as a potential breakthrough in the field that could accelerate the development of a commercially viable product.
Shares of all three of the small-cap companies named above briefly rallied on the news on Tuesday, although only one — Rigetti — managed to hang on to its gains by the time the closing bell rang. Shares of both IonQ and D-Wave Quantum continued to slide on Wednesday....
....MUCH MORE
We happened to catch the Google story via the NYT on Monday evening: "Quantum Computing Inches Closer to Reality After Another Google Breakthrough" (GOOG).
The next trading day it was up ~5%. Today it set a new all-time-high.
If interested we have quite a few posts on D-Wave and to a lesser extent Rigetti. Use the 'search blog' box upper left.
One final word on risk. If an overvalued company you are short actually has some worthwhile technology there is a real risk that they might be acquired for that technology, which can wreck your whole day.
Or more importantly your annual bonus.