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It's the Dow at 20,000!!. Print
Written by Site admin   
Thursday, 22 December 2016 13:16

bullmarket
  The Bulls are roaring, the charge is unstoppable, just jump aboard and enjoy the ride!

  There's something about big round numbers, we see it so often. They seem to have a magical magnetic attraction and the Trump booster rocket has almost made it to the magic 20,000. There's an old stock market saying "Equities climb a wall of fear" and that seemed to apply in the immediate aftermath of Trump's election.

We all like to read a good story in an attempt to rationalise what we see in the moment. However, most of these have to be re-written when looked at with hind sight. There are precious few analysts who have come out with a plausible story to explain why the market should have moved as far as they have since the election apart from what they believe is the effect of Trump's policies and actions yet to come in 'making America great again'.

The optimists tell us the VIX fear index is at amazingly low levels so there are no worries, everyone is comfortable and cosy here. But those contra-think traders read the VIX the opposite way. A low, no fear, reading they say is when we should be most fearful because there is something out there just waiting to hit the market, crash the Dow and send the VIX soaring.

Next is the story of valuations. The Price earnings ratio (PE) is currently just under 26. A look back at this chart from multpl.com shows that anything above 24 is considered over-valued. During the Tech boom in 1999 the magic number was then 10,000 for the Dow and the PE ratio was well over 24. It hit that magic number then climbed a further 15% over nine months before the crash that trimmed it by over 35%.

Then there is the story of what happens after a two term presidency. A recession starts within 12 months of a new president taking office - it's happened every time, 100%, since 1910!!

There are also stories doing the rounds of the blogosphere comparing now with the 1970's. Sure, there were some great stock market runs, 1970-72 and 75-76, but there were also two major bear markets that almost halved the Dow between 73-74 and by more than 30% from 1976 through to early 1978. A decade of volatility.

  Source

Again, a magic number was talked about back in 1972, 44 years ago. The Dow forged through 1000 as Richard Nixon's second term was coming to an end, as optimism took hold. Nothing could go wrong.

An office broker, watching the stock tape from his desk downtown, murmured in wonderment: "There's a sort of renewed confidence in the whole economic outlook."

Perhaps, it really will be different this time.....

Source

Nine months later, the US entered a recession....and the stock market collpased over 44% from it's highs just above that magic 1000.

 

From the blog

The Isaac Newton Trade

Isaac Newton was a very clever man. Mathematician, Astronomer, Agriculturist, Theologian and Physicist, read about his incredible achievements here in Wickpedia.

Regrettably, clever men are just as falible (dumb stupid) as anyone else when it comes to playing in the markets as a newbie. Our egos tell us it can't be that difficult as we know all there is to know about Astronomy, Physics, Banking Finance, HR, electronics, being a big shot entreprenuer, etc., etc. For those to whom humility doesn't come easily, the markets will be a painfully great leveller. 

Read more...

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