Why I Shorted SanDisk (Part 2): A Decision to Go with the Flow

Why I'm Shorting SanDisk (Part 1): The Unchangeable Cyclicality of SanDisk's Business Link to the first part, read it to understand my complete logic.

It's undeniable that since last September, $Sandisk(SNDK.US) has become the star of the storage sector. The reasons for this N-fold increase (nearly 30x from the low of 27 yuan on April 15th to the high of 725, and 14x from 54 yuan on September 4th when entering the growth phase) are none other than the following:

1 SanDisk came into existence due to the spin-off from $Western Digital(WDC.US). You can think of it as a small-cap stock with no bagholders (less than 10 billion).

2 At the time of the spin-off, the storage industry was in a downturn, its value was underestimated, and it had Western Digital as a value anchor. This is why I predicted earlier that its market cap would approach or exceed Western Digital's. Now it seems its market cap is basically equal to Western Digital's.

3 It's undeniable that SanDisk indeed has a very good brand in consumer storage, with excellent market share, which gave a reason for the crazy long positions.

4 The storage industry entered an upcycle, and the narrative, after much fermentation, gained market recognition.

In summary, it possesses all the elements of a meme stock: small float, no bagholders, no unstable selling pressure, excellent brand, and business in an explosive growth phase.

With the hype around the narrative, the stock price reached 725, a 30x increase, while the growth in earnings and profits did not achieve explosive growth. The current stock price has already severely over-discounted future price increases.

From its rising K-line, we can see that its rise, driven by sentiment and deep narrative exploration, went through three stages: germination → growth → explosion. Next, as the storage industry enters a stable period, its stock price will also enter a stable period. Perhaps the stock price will react more sensitively to the stable period, increasing volatility and shortening the duration of the stable period.

With the shift of capital, the stock price quickly entered a decline phase, with consecutive days of gradual decline.

Look at it from another angle. When a stock with a clear business cycle has seen a 30x increase, its price reaching 725, and with the strongest earnings report, the stock price gaps up and then plummets, don't you think the risk has peaked?

When all good news is out, it becomes bad news. Once everything is realized, the rally naturally ends.

Even if it releases another strongest earnings report and has a chance to rise to 800, a 10% increase from 725, the risk you bear is a 50% loss. From this perspective, this investment is very irrational.

The volatility has been high these past few days. I've been closely watching its movements and found a few interesting phenomena:

1 Buy orders exceed sell orders, but the stock price keeps sliding. This is very likely fabricated buy orders.

2 When buy orders at a certain price level accumulate to 800 shares, the stock price quickly touches that level. If you want to buy, you can definitely buy.

3 There are always a few thousand shares of buy orders about 20 ticks away. When the stock price approaches, those thousands of buy orders automatically disappear. This is the common fake support order.

4 Sometimes the spread between the best bid and best ask reaches $1.

This series of signs indicates that the current stock price fluctuations are completely controlled by hot money. They are using the T+0 rules for repeated arbitrage and using the rules of forced liquidation to turn sellers or buyers into reverse operators. Combined with options, they are harvesting wildly by manipulating the stock price.

Why can't the stock price go up?

Because maintaining the stock price is for going long or distributing shares.

Going long requires more capital and chips.

For the rhythm of US stocks, plus SanDisk's popularity, distribution can be completed in just 2-3 days.

But when the stock price reaches a high level with no room for further upside, every long position is extremely risky and can even bury the hot money, making them the last ones holding the bag.

This is why I'm shorting it, and also a reminder to those self-hypnotizing newbies: don't harbor the fantasy that it can go even higher. Even if it could, it's no longer suitable to be bullish. Because the reward is not proportional to the risk.

The US stock market is a logical market, but just like the A-share market, it has gray tactics. After all, having developed for over a hundred years, the A-share market is just a little brother in terms of manipulation techniques.