U.S. Stock Market - UnPLUGged !

One of the hottest stocks in the history of the U.S. market crashed and burned today. Plug Power Inc. (symbol PLUG) opened this morning (Tuesday) at $11.50/share, up from a close of $10.31 on Monday. At today's opening there was no reason to think that PLUG wouldn't post another outrageous upside day, just like those that have regularly unfolded over the last three weeks. On February 20th, PLUG traded as low as $3.34/share, and in May 2013, this stock was just $0.12/share. Plug Power Inc operates in the Fuel Cells industry which is the single hottest sector this year; that is until today.

PLUG traded as high as $11.72/share immediately following today's opening and then collapsed. A negative research note by Andrew Left, an analyst with Citron Research, appeared to be the catalyst for today's dramatic decline. Most of the other stocks that operate in the Fuel Cells space also plunged (albeit after spectacular gains over the last several weeks). 

PLUG Hourly Bar Chart

So what? Why write a special stock market update on the collapse of a "penny" stock. Why is PLUG so important? 

To every trader of stocks, professional or amateur, the dream is always there to catch "the Big One". Just once, to own that "legitimate" company that advances from $1/share to $10/share; the "Holy Grail" of trading; the infamous "ten bagger". And some patient investors have actually achieved this amazing feat, usually accomplished over many years. PLUG was $0.47/share on November 7th, 2013. At today's intraday high, PLUG was up 2400% in just three short months. Wow! According to Mr. Left at Citron Research, PLUG earns no profits, has no unique technologies, and is currently the beneficiary of government subsidies within it's industry operating space (fuel cells). 

For any investor watching the fireworks in PLUG and other fuel cell related shares over the last few weeks, it was easy for them to rationalize holding their own stocks with the simple philosophy of "Why not my stock?". If PLUG can soar 2400% with its [outrageous] valuation metrics, my stocks must surely be worth more and could easily "catch fire" themselves! Makes perfect sense!

In my view, this is the philosophy that has contributed so greatly to the current record highs we are seeing almost daily in most major stock market indices, despite historic over-valuation in so many excellent time-tested metrics.

BUT NOW IT'S OVER! PLUG COLLAPSED 48% IN JUST A FEW SHORT HOURS TODAY AND INVESTORS ARE NOW THINKING "COULD MY STOCKS GO DOWN LIKE THAT?"

This conclusion may be a bit unorthodox and clearly "outside the box", but here are a few more thoughts that may be noteworthy and also have a basis in rigorous quantitative analysis.

Daily Chart sell signals were triggered within my computer-based trading program in the following major indices at today's New York close:

1. S&P 500 Index (see chart below)

2. Nasdaq Composite Index (see chart below)

3. Russell 2000 Stock Index

4. New York Composite Index

5. Dow Jones Industrial Average ETF (symbol DIA)

Sell signals were also triggered in the following sector indices: XOI, DVY, NDX, QQQ, OIH, OSX BKX, IWM, IWN, OEX, SPY, XBD, MSH, and SOX.

Bottom line: In many ways, it feels like March 2000 to me right now. Several excellent valuation parameters may have been slightly more stretched then as compared to now, but the price action looks very similar to me. And we all know what happened then. In the interest of full disclosure, I currently hold a large position in the Pro-Shares Ultra-Short S&P 500 ETF (symbol SDS) in one of my managed accounts.

S&P 500 Daily Bar Chart with Computer-generated Buy & Sell Signals

Nasdaq Composite Index with Computer-generated Buy & Sell Signals