How low can it go?
The stock market, that is.
In
general, I consider "Technical Analysis" of the stock market to be akin
to looking at chicken entrails to predict the future. Technical
Analysis involves looking at past prices and patterns of past prices to predict future
prices.
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| The last five years of the S&P 500. From mid-2022 until mid-2023 the S&P 500 meandered between $3500 and $4000. The S&P 500 is currently trading at approximately $5600 or 50% above the lows of three years ago. |
How-some-ever, I do believe that there is much value in looking at historic LOWS or "floors" from the previous business cycle.
A "floor" suggest that there are robust support mechanisms (mechanisms, plural) that prevent it from going below that value.
Unless
the price of the S&P 500 penetrates $3500 downward, then the price realignment can be
written of to "normal" market fear-greed dynamics and "normal" adjustments within the economy. To quote Forest Gump,
"Shit happens". Don't sweat it. Hold your position. It is very likely
to oscillate upwards unless several of the robust support mechanisms have been vaporized.
Normal oscillations recover more quickly than secular oscillations with the full cycle of a normal business cycle being on the order of four years...not coincidentally the frequency of the US Presidential election.
This is a good time to reminder readers that diversity is your friend. The 50% upward climb from 2022-2023 was powered by relatively few companies. The recovery from the 2025 "adjustment" is likely to be powered by different industries, different companies. Since I claim no ability to read the future, the lowest risk way to benefit from the realignment of the economy is to invest in equity income funds.
As always, have some money in easily-accessed funds so you don't find yourself forced to sell when prices are distressed. "Bonds" and Money-market funds are also a cornerstone in diversifying your portfolio, although they function more as a preservation-of-capital element than as a growth element.
Thinking logically in a historical manner is useful BUT not including the emotional-political Malstrom going on isn't prudent.
ReplyDeleteAn active political Malstrom of mostly anti-Trump propaganda about Tariffs and such is ongoing.
Look at Telsa for details.
History shows the "smooth" arc of investments. Not the hour-by-hour byplay of shock reporting like the newspapers of Black Tuesday that were reporting on what was happening NOT anti-Hoover propaganda.
Such propaganda can turn "Safer" American markets into more risky 3rd word markets IF that's the intent of the propaganda.
Expect chop AND social unrest give the openly planned "event" this weekend and such. "Hands OFF" is advertised as a peaceful protest BUT then again CNN called BLM's "Protests" "Mostly Peaceful but fiery" while reporting in helmets and bullet proof vests.
BTW that Burn Loot Murder "protests" along with prolonged Antifa in Portland-Seattle was ALSO anti-Trump actions. So precedent is set.
Actually... TA (Technical Analysis) and candle-stick analysis has been around for thousands of years. Chinese and Japanese rice traders first started the science/theory a couple thousand years BCE.
ReplyDeleteThomas Bulkowski has done some great work on statistical analysis of TA (another of your favorite topics!)
https://thepatternsite.com
Some of the chart patterns have in excess of 65% predictability, which as you know, is statistically significant, ergo actionable. I still don't own a Ferrari, but the math is there, and Mr. Bulkowski has a couple books and is very active on his website. Very friendly and approachable fellow as well, we have eMailed back and forth many times, even worked on a few new patterns together - really swell guy!
So while I do not discount your allusion to the market being a 'random walk', studies have shown there is some method to the madness. It is a reflection of human nature, which hasn't changed in eons.
Profiting from it is the hard part. As a wise trader once told me, if it were easy, we'd all be driving Ferrari's! Discipline and removing ones emotions from the decision making process is quite challenging.
If one had flexible assets and weren't sure what to do with them, I would suggest physical gold assets you can hold in your hand (try the local coin dealer, or APMEX.com). Nothing custodial, nothing on paper. Hard, physical metal in your hands.
Astrology and alchemy have been around for thousands of years as well. Step carefully around the market.
DeleteDividend paying stocks or ETF's avoid the fees to a degree. Bonds against a back drop of falling interest rates are a pleasant bit of news. Roger
ReplyDeleteI see the stock market numbers and wonder just how much of that is the value of the dollar?
ReplyDeleteAccording to https://www.usinflationcalculator.com/ the 50 cents per gallon 1974 gasoline prices would be $3.24 per gallon today & that is almost what I saw on a sign yesterday.
I find it very hard to look at gas prices and think that they have not REALLY changed over the last 50 years... and then I look at all the other costs today & wonder.
Note the S&P500 is not truly diversified - there are about 7 stocks that dominate all 493 others - Apple and Nvidia being two of the biggest players ... for the time being. Exxon is worth $500billion; Apple is worth $3.3trillion ... almost 7x larger than Exxon.
ReplyDeleteBiden et al dumped trillions into the market. As the resulting value of the dollar decreased, the number of dollars required to purchase something (for example, stocks) went up. The stock market increased in dollars but not value. Now the game is to pull some of those excess dollars out of the economy resulting in prices going down. A 20-30% decrease in the market might occur over the next few months. Feels like a s**tstorm coming.
I fully agree than many of the dollars that Biden (and even Trump's last year in POTUS 45) were funneled into the stock market as a parking place. With all of those dollars being pumped in, stock prices went up. Since the parking place was paying so handsomely (on paper), there was never any reason to move them into expanding factories or buying tools.
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