Is 'Big Short' Investor Michael Burry Signaling Something Ominous With This Old Market Chart? 'Maybe'

"The Big Short" investor Michael Burry posted a cryptic tweet, which at best sounds epiphanic and at worst a grim projection of a potential false breakout, something that cannot be ignored under current market conditions.

Burry posted a chart that appears to be the S&P 500 index, spanning from mid-2000 till early 2003. The investor highlighted the region between mid-Sept. 2001 and mid-March 2002, when the S&P 500 rose 18% following the stock market crash in the wake of the 9/11 attacks. This was the period, as Burry highlighted in his chart, where the 50-DMA (daily moving average) crossed over the 100-DMA, indicating a bullish trend.

Screenshot from Burry's Twitter

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However, between March and Sept. 2002, the market shed a whopping 30%, clearly highlighting the fallacies of false breakouts that many investors follow and often fall into traps.

This decline has been previously attributed to the larger dot com bubble crash, an outbreak of many accounting scandals following the Enron saga, and the bankruptcies of many internet companies.

Benzinga’s Take: Burry’s one-word tweet, “maybe," might be reflecting his skepticism over the current market rebound that is riding on the widespread anticipation that the Federal Reserve will slow down its rate hike pace to 25 basis points at its next policy meeting.

A report in The Wall Street Journal indicated central bank officials are preparing to slow the rate hike pace for a second straight meeting in early February as more confidence emerges that inflation will cool further this year. 

Comments by Fed Governor Christopher Waller on Friday that indicated a favor toward a quarter-percentage-point rate hike at the next meeting boosted investor sentiments.

As a result, the SPDR S&P 500 ETF Trust (NYSE: SPY) has gained over 5% since the beginning of the year, while the Invesco QQQ Trust Series 1 (NASDAQ: QQQ) gained over 9%.

The S&P 500 daily chart below also shows the 50-DMA line crossing the 100-DMA line at the beginning of 2023. Only time will clarify whether this is a false rebound or the beginning of an extended rally.

S&P500 chart | Source: Trading View

However, concerns from Burry, whose epiphanies have worked out brilliantly in the past (at least for his investors), cannot be easily neglected.

It all comes down to what one Twitter user said in reply to Burry’s comments: “Can’t wait to watch the options tape on the put side tomorrow after this tweet.”

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Michael Burry illustration by Gonzalo Lanzilotta for Benzinga.