Post bubble markets seem much less rational because the bubble itself was irrational. SPX over the last 3 years. That is a big rally and a big correction.
Let's look at the SPX Price to Sales ratio for the last few decades.
The price to sales ratio exceeded even the dotcom mania top in 2000. Yes, corporate tax rates and profit margins are higher now, but profit margins fluctuate with the business and political cycles. It would be difficult for these profit margins to sustain forever given populist uprisings globally.
Yes, we've gone down quite a bit from the October top, and we are due for an oversold bounce, but valuations will not be supporting this market on the way down until you get closer to SPX 2100. It is not as friendly of a monetary environment as the last time SPX was at 2100, in 2016. There is tighter money and higher interest rates. On the plus side, there are lower corporate tax rates. If you say those two factors even themselves out, then a move back to 2100 would be reasonable. But unlike 2016, we are currently on the down side of the business cycle, not the upside. So that should also be considered a negative for the market.
If we have a protracted, slow decline with many bear market rallies, then the bear market can last until 2020. If the decline is sharp and steep with few bear market rallies, then the bear market will be over in 2019. I am leaning towards a protracted bear market with the decline slowing down and flattening out in the first few months of 2019, as the economy will take its time slowing down. This will give false hopes that the economy is not so bad and about to bottom, but the business cycle has turned, and that will last longer than a few months.
I expect (hope?) a holiday week bounce after the vicious selling last week, and most of the fund liquidations for 2018 should be finished by now. There will also be pensions looking to rebalance from bonds to stocks this month as the ratio has gotten quite skewed this month. I am hearing $90B from bonds to stocks for pensions. Anyway, Trump's desire to fire Powell and Mnuchin's panic reaction are putting downward pressure on the SPX futures here. This downward pressure should dissipate as the day goes on.
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We will be at 2800 in a couple months watch
Agree, bottom is in. Should rally for the rest of the week, could get up to 2480, where I will sell. It could go a bit higher, but the Powell selloff day finished around 2500, and that will be solid resistance, as shown last Thur and Fri. If we sell off back down to 2400 after I sell, I will rebuy for another run to 2480.
One of the other reasons why I feel this market can get high up there is the existence of so many bears. Everyone is bearish and expects the market to dump. No way out but to dump. Well the powers that be can also orchestratedly maneuver the market to squeeze higher knowing this is the case. Imagine how many short sellers the big 20 hands in the market like Calpers, Fidelity, Blackrock, Capital Group, Vanguard can squeeze dead on the way back up knowing everyone not only expects the markets to sputter soon along the way up revert back to dumping but also happily and with conviction willing to short at any price. The big hands will have a lot of targets to take money from in the form of short sellers.
Ibankcoin thinks we are headed to what he calls the Fagbox lol. A triple top/bottom range we were in from October to December. So 2600. Once inside we will be hit with heavy selling and risk getting our face blown off. This fits my thesis as well.
The Fagbox
2600 will be tough to get to. I am thinking 2510-2530 will be a hard ceiling on this bounce and then back down to 2340. Shorting the rips and buying the dips mode now. Its no longer a time to hold and hope for a miracle.
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