I would like to thank Helga Sweeney and Alex for their observations on “pesky charts”
what about supply and demand for NASDAQ? or for that matter DOW and S&P ?
Before i answer that – lets look at some basic fundamental traits in the charts for 2017 and till now 2018
what did the pundits say – This is a valid dictum – Do opposite what the pundits say and you will be alright !!
look at what IBD said “Since 1963, the S&P 500 delivered 19 years in which it rallied more than 15%. But each year following those big gains averaged a more modest 7.5% advance.” and “investment strategists and fund managers expect more modest stock price gains in 2018.”
I respect IBD a lot; In fact the big picture column is fantastic and is a daily read for me to gauge the “Big Money flow”- which is nothing but this : How is the price performing wrt the volume on a daily basis. How are leading stocks like YY, AMZN and others performing? For we know that with first signs of big selling the leading stocks lose first and then the volume increases to overall stock market as it falls.
NASDAQ’s number of distributions days (high volume selling) is just 1 in the last 30 days and It is up 7.3 % till Jan 22nd 2018! we haven’t even finished one month yet!
The S&P 500’s 2017 return was more than double the big-cap bogey’s 8.50% average annual gain over the past 10 years. The Nasdaq composite index shot up 29.64% and the DOW jones gained 25.08%!
Only once in the lasts 25 YEARS the S&P is up more than 6 % in Jan (1997 – 6.7%). the S&P just hit 6.00 % just yesterday !!
the delta market sentiment indicator is approaching 74% (74 % of around 2500 stocks are above they mid term moving average)
the leading economic indicators (LEI) is healthily positive last one year
the stock market is healthy and going strong with no head winds at all
what’s more at the top? More of the top.
Last week all the indices hit all time high. How far is far enough?
when P/E is constant, then the risk premium is constant.
P/E has been hovering for S&P Index around 20.5 for the last and half year (DEC 2015 to June 2017) . earning increased from 100 dollars to 116 dollars around 16%
So mostly the gain in S&P came from the gain in real earnings of the companies!
So assuming just the earning to grow by 10% (very reasonable..just the growth %) and P/E = 20.5 as constant
then S&P would be (116+10% of 116) * 20.5= 2615 – a gain of 144 points from today.
the leading economic indicators – % change has been positive for the last 10 months!
around 65 % of stock market is about its 75 days moving average.
Now value of companies according to the theory is based on discounted value of the cash flow. because of low interest rates companies can borrow much with little interest paid. Hence expansion, hence earnings growth!
“The market can stay irrational longer than you can stay solvent.” – John Maynard Keynes
As i said in last post, market is in correction. I have entered into 1 new position – ultra short of QQQ.
The ticker is QID. It is not a short position, but long (bought) position.
It is double the reverse of nasdaq.
Reason for entering : It just crossed above the 75 day SMA, and market is in correction
this morning i read this in yahoo finance (note the 20/20 vision looking at the past) – “To those poor souls Trennert suggests backing up and remembering that valuation always matters. Corrections lead to selling that takes down blue chips as well as garbage names.”
I am not a poor soul, I did not get into the market. Because the market is still in correction (How long or how short time will tell).
Let me again empathize the fundamental difference. I trade based on one and only one thing – Price.
I have one and only one signal – 75 day Simple Moving Average.
DMSI, and IBD big picture help me a lot in confirming my signal.
So valuation based on opinions don’t matter in my style of trading.