'Big Short' Michael Burry says US markets nearing a 'major top', warns of a 1987-like fall

American investor Michael Burry of "The Big Short" fame remains bearish on the Wall Street rally even as the S&P 500 surges to another record high on Tuesday. He warned hat the rally can still end in a sharp sell-off similar to the 1987 stock market crash.

Burry, in a Substack post on Tuesday said, he continues to believe it is possible the markets are near a major top and warned of a possible 1987 type fall, but the S&P 500 making fresh highs would likely bring new money into the market.

The S&P 500 increased 1.9% on Tuesday to its first record close ever since June. The Nasdaq Composite extended its gains, rising 2.7%.

Burry has been among the most outspoken skeptcis of the recent AI boom, arguing that the demand for such infrastructure is likely being fueled by financing arrangements which may result in being unsustainable. He said the market's increase is creating a self-reinforcing cycle as declining volatility encourages systematic investors to raise their exposure.

In his post, the Wall Street veteran reminded that the market going up on falling volatility in turn forces vol-targeting funds to leverage up, which brings leverage from other momentum strategies into play.

He said that in face of the rally, he continues to hold short positions on Micron, Nvidita, iShares Semiconductor ETF (SOXX), Caterpillar, Tesla, Palantir, and Applied Materials.

Burry said he is confident in his long-term outlook for these positions although he added that he could cut his losses if the trades moved against him decisively. He added that all positions remain profitable barring his bet against Nvidia.

He added that again, shorting is not for everyone. "I must short. Most should not," he wrote.