If this is not the top, then there is no point in ever selling again as the Fed has completely destroyed the free market. QE has put the market on steroids and every correction from now on will only last as long as it take congress to pass more stimulus. Hope you enjoy the charts and maybe someday resistance lines will matter again.
1974 channel (end of oil crisis)
1994 channel (Netscape web browser)
2009 channel (Quantitative Easing - QE)
2020 channel (Covid and the end of the free market)
Guys lets not get political, lets remain level headed. Last March I learned the hard way not to invest with headlines. Let's look at this situation analytically using MGV and MGK, Vanguard's value mega cap etf vs. it's growth mega cap etf. For those not familiar, growth stocks are high-roller stocks. Stocks that well-paid analysts believe will continue their rockstar trends up into infinity. Value stocks are stocks that have excellent book value to price ratios. Berkshire is an example of a value stock these days. Amazon is an example of a growth stock. Growth stocks should ALWAYS grow faster than value stocks, but should be more volatile. However, they should never exceed the growth of value stocks by more than some reasonable amount. This reasonable amount can now be derived statistically from MGV and MGK's trends. Under normal circumstances, at the most, MGK should not exceed MGV's yoy return by more than 20-30%. Even this deserves a correction. However, these days MGK has exceed MGV's growth by MORE THAN 50%. This suggests an extreme correction is underway for growth stocks (ie Tesla, amazon, apple etc). This also follows the rational conclusion that stimulus will run dry eventually and the momentum on these stocks that have been skyrocketing will break. Thus, I personally have concluded that growth stocks should be avoided in the near term (~1-2 years).
As for all the political no-free-market, we hate the democrats, we hate the republicans, blah blah blah rhetoric. Throw it away. Don't invest with headlines. Relax, there is still a free market. Relax, the 1.9T plan of Biden's is NOTHING in comparison the 20T+/yr economy, which has a net worth of over 150T. Obamacare itself was on the order of 1.5T. Its not going to effect anything and may help the world. As for Trump's conservative policies. Yes they probably helped the stock market, no they probably didn't help average people, yes people will probably indirectly benefit, no they wont benefit as much as rich people. This is how policy works, there's never a perfect.
But the bottom line is that MGK and growth stocks are headed for a crash. Value stocks, on the other hand, should be a good safe-haven. There is an equal likelihood at this point that the market recovers vs. it crashing. Value stocks will remain steady either way. Personally, I have maneuvered from MGK to MGC. MGC is a blend (normally im all in growth stocks b/c im young).
unicow
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This happened in Japan in the 1990s. Everyone expects stimulus to be a golden shower of help to the economy, but when people are jobless, they just save the money. Deflation and deleveraging inevitably happen. Man, I just hope they happen now.
The question I see come up from time to time is if the US is somehow different since the US dollar is the baseline currency for so much of the world. That was not true for Japan back then. Did the US learn something from the Japan crises and are now able to avoid it?
I am still amazed by the Fed's lack of desire to do anything about it except keep pushing it up. The desire to have the best economy ever (with the terrible idea that the stock market is the metric) and total disregard how that affects hard working people is despicable. It is just a case of make the rich richer and the poor poorer. As we know, those rich people are more important because they give campaign donations and other kick backs.
unicow
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@Dr_Roboto, economist Richard Koo says that you can indeed draw parallels from Japan in the 1990s and the US and the rest of the developed world today despite the different currency situations. He coined the term "balance sheet recession," which is where there's enough liquidity but everyone is busy paying down debt. The catalyst would be a major devaluation of assets--which we surprisingly haven't seen yet.
Dion Rabouin from Axios published an article this week citing internal fed officials dissenting with Powell's view that the stimulus train should never stop: axios.com/newsletters/axios-markets-a7c2113a-a269-4cf0-8b2e-b1e1352bff5c.html Ro Khana (D-CA) on the banking committee in the House appears to be pushing for more fed support of small banks and not the huge institutions. Maybe the new congress's tinkering with the fed will cause the status quo to change--hopefully leading to an asset bust.
I spent the larger part of 2020 fuming at how people who are doing what they're told by the mainstream narratives ("don't fight the fed" or "stonks go up") were making money while my well-researched thesis, which is corporate debt was already too high in 2019 and thus due for a deleveraging, only lost money in the stock market. I learned a ton from all the money I lost. One of the things I learned was that you can be right--but if you're not right at the right time, it's hard to short the market. Shorting requires the right timing in a bull market. Throughout the year, I followed the news and geopolitical analysis heavily to try and inventory the major events... of which there were plenty... and their likelihood to spark a deleveraging. Yet, all the major crises of 2020 pinged off the teflon coat of bullish bullshit.
Here we are in 2021 and the narrative is now the "ample consumer savings" and "bank health" combined with the saving power of VACCINES (mana from heaven!) are going to cause US GDP to grow by 4%. This narrative is likely wrong per Richard Koo's research on Japan. But for now, the bullshit march continues.
@ProfitHarvest alerted me to the work of Dante Valerian dantevalerian.com/ I joined his strategic trading community for 67/MO, and I've heard him say on many occasions that "The minute I start saying the market isn't working the way I think it should is the minute I'm about to lose a lot of money." That's not to say he's in favor of the bullshit bull market we have today. It's just that without the right signals, we can't know when the house of cards is going to finally tumble or chip up again for another blowout. Supporting our bearish thesis is USD waking from cryosleep. If USD keeps climbing up, bears could be in for a treat with international investors sparking a wave of fresh selling. Another ray of hope for bears is the long term interest rates of US government treasuries seem to be climbing in what I hope to be an "ice bucket challenge" for the bullmarket.
ProfitHarvest
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@unicow, His MCI data is very valuable for timing long and short trades. Shorting while liquidity is rising can be suicidal, likewise with longing into rapidly falling liquidity. So already cuts down ideal entry/exit windows by about half.
Also the reason why I short via volatility rather than directly shorting markets. Markets generally go up so hard to time when they fall but massive volatility can happen anytime (usually 1-4 times/year among many smaller spikes) and pays out multiples on any Price collapse compared to marginal gains from a much riskier direct short trade.
@unicow, the frustrating part is that I am not a perma-bear. I just want to invest in equities that are real and that I can do research on that tells me they are good buys. I want to invest not gamble. Not that bubbles are new to the stock market, but the last few years the market seems to have a serious case of bipolar disorder and exhibiting massive manic episodes. If it is not setting record drops in record time it is record highs in record time.
A manic episode is characterized by a sustained period of abnormally elevated or irritable mood, intense energy, racing thoughts, and other extreme and exaggerated behaviors. People can also experience psychosis, including hallucinations and delusions, which indicate a separation from reality. The symptoms of mania can last for a week or more and manic episodes may be interspersed within periods of depression during which you may experience fatigue, sadness, and hopelessness.
Symptoms:
- Abnormally upbeat, jumpy or wired --> weekly rallies that go up more than some years?
- Increased activity, energy or agitation --> Robinhood
- Exaggerated sense of well-being and self-confidence (euphoria) --> This time it is different, risk on
- Decreased need for sleep --> Morning gap ups anyone?
- Poor decision-making — for example, going on buying sprees, making foolish investments
unicow
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@Dr_Roboto, I hear you. It's the market is a mental patient, and the warden of the sanitarium is Chairman Powell--saving the world with his money printer. If I didn't believe the market's day of reckoning was incoming, I'd liquidate my investments and just buy gold.
ProfitHarvest
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@Dr_Roboto, Don't forget rich people single handedly "create jobs" for the rest of us poor helpless saps and that the 70% of consumer spending driving our entire economy has exactly 0 relation to job creation. -Conservative Logic 101
Dr_Roboto
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@ProfitHarvest, don't get me started on trickle down economics. The biggest scam in world history.
As for all the political no-free-market, we hate the democrats, we hate the republicans, blah blah blah rhetoric. Throw it away. Don't invest with headlines. Relax, there is still a free market. Relax, the 1.9T plan of Biden's is NOTHING in comparison the 20T+/yr economy, which has a net worth of over 150T. Obamacare itself was on the order of 1.5T. Its not going to effect anything and may help the world. As for Trump's conservative policies. Yes they probably helped the stock market, no they probably didn't help average people, yes people will probably indirectly benefit, no they wont benefit as much as rich people. This is how policy works, there's never a perfect.
But the bottom line is that MGK and growth stocks are headed for a crash. Value stocks, on the other hand, should be a good safe-haven. There is an equal likelihood at this point that the market recovers vs. it crashing. Value stocks will remain steady either way. Personally, I have maneuvered from MGK to MGC. MGC is a blend (normally im all in growth stocks b/c im young).