Michael Burry, the investor who inspired the film "The Big Short", has warned that after a "parabolic" surge that has pushed technology stock valuations to unsustainable levels, the Nasdaq 100 Index is facing a sharp reversal.

In a post on Substack, Burry said current market conditions resemble the peak before the bursting of the dot-com bubble. Since late March, the Philadelphia Semiconductor Index has accumulated gains of nearly 70%. By his calculations, the Nasdaq is currently trading at about 43x earnings, far above a "reasonable level" of around 30x, as "Wall Street has overestimated the earnings of the fastest-growing and most highly valued companies by 50%."

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"We are witnessing history. In the stock market, that is usually not a good thing," Burry wrote. He likened the current situation to "the last few minutes before a bloody car crash." He said investors are entering an extremely rare phase whose severity will bring inevitable consequences, with nowhere to hide. Looking back at history, even if the euphoria continues for another week, month, three months or even a year, the final outcome will be a substantial price correction.

However, Burry advised against short selling, citing the high cost of put options and the risk of mistimed trades. He suggested investors take profits from the recent rally and reduce overall equity exposure, particularly exposure to technology stocks. (da/u)

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