The indexes seem to be recovering from the fall
Updated
After Thursday’s close all the major indexes of the market, on the daily charts, are above their 30d and 50d SMAs
and their MACD indicators either have already given a buy signal or they are ready to do so.
If on Monday the market rises and closes with a positive sign, the technical analysis will give us a time-filtered signal
to reposition ourselves in selected stocks. However, we must keep in mind the following data:
• The S&P 500 index has a trailing 12-months P/E ratio 33 whilst the 10-years average is 18.4 and
a forward 12-months P/E ratio 21.6 whilst the 10-years average is 15.9 (source: Factset.com).
• Flows to equities from around the world are at all-time highs.
• Global institutional investors are over weighted to equities near to all-time high percentages.
• The margin debt on February reached 270 billion dollars (all-time highs) whilst its 1999 high was 140B and its 2007 high was 160B (source yardeni.com).
• The “smart money” confidence index on late February was near its all-time lows whilst the “dumb money” confidence index was near its all-time highs.
• From the 8,638 USA stocks only 2,501 are profitable (28.95%). However, 4,494 stocks are above their 50d SMA (52%) and 6,110 stocks are above their 200d SMA (70.73%).
All the above are signs that a big bubble is formed and can burst any time the “smart money” will choose. We should also know the following estimate:
• For Q1 2021, the estimated earnings growth rate for the S&P 500 index is 23.3% (source: Factset.com)
and keep in mind that the fall begins when all the numbers are excellent and the investors are in great euphoria.
I have to stress some things also:
• The indexes may sometimes be lying. The indexes may rise but the majority of the stocks will fall.
This happens with the rise of selected index-heavy stocks.
• The Advance Decline Line may be lying because it measures how many stocks go up or down, not how much they go up or down.
So, for 3 days the Advance-Decline difference may be positive and these stocks will rise 1% each day and one day the Advance-Decline
difference could be negative and the same stocks could fall 6%. The Advance Decline Line will ignore the 3% fall and keep on rising.
• Therefore the only criterion that we should trust completely is whether our own portfolio goes up or down and we have to make
our investment decisions based on this criterion. For example, the HERCULES portfolio has so far not followed the rise of indexes, as shown below.
Concluding, we can place ourselves in stocks with as good fundamentals as possible by strictly following the rules I describe in my post "You can’t beat the market".
However, from now on we must be on high alert and be prepared to hit the sell button anytime (or with nearby stop losses), because the situation can change abruptly
and may lead us to big losses.
I wish everyone good luck.
Prompt: New traders should take some time and carefully read the post entitled 'You can't beat the market' that is located in my profile.
Disclaimer
The author of this text is not an investment advisor. The preceding content is intended to be used for informational and educational purposes only.
It is not an advice or inducement for the purchase or sale of the products mentioned. Before making any investment based on your own personal circumstances,
it is very important to do your own research and analysis and also take independent financial advice from a professional to verify any information provided here.
and their MACD indicators either have already given a buy signal or they are ready to do so.
If on Monday the market rises and closes with a positive sign, the technical analysis will give us a time-filtered signal
to reposition ourselves in selected stocks. However, we must keep in mind the following data:
• The S&P 500 index has a trailing 12-months P/E ratio 33 whilst the 10-years average is 18.4 and
a forward 12-months P/E ratio 21.6 whilst the 10-years average is 15.9 (source: Factset.com).
• Flows to equities from around the world are at all-time highs.
• Global institutional investors are over weighted to equities near to all-time high percentages.
• The margin debt on February reached 270 billion dollars (all-time highs) whilst its 1999 high was 140B and its 2007 high was 160B (source yardeni.com).
• The “smart money” confidence index on late February was near its all-time lows whilst the “dumb money” confidence index was near its all-time highs.
• From the 8,638 USA stocks only 2,501 are profitable (28.95%). However, 4,494 stocks are above their 50d SMA (52%) and 6,110 stocks are above their 200d SMA (70.73%).
All the above are signs that a big bubble is formed and can burst any time the “smart money” will choose. We should also know the following estimate:
• For Q1 2021, the estimated earnings growth rate for the S&P 500 index is 23.3% (source: Factset.com)
and keep in mind that the fall begins when all the numbers are excellent and the investors are in great euphoria.
I have to stress some things also:
• The indexes may sometimes be lying. The indexes may rise but the majority of the stocks will fall.
This happens with the rise of selected index-heavy stocks.
• The Advance Decline Line may be lying because it measures how many stocks go up or down, not how much they go up or down.
So, for 3 days the Advance-Decline difference may be positive and these stocks will rise 1% each day and one day the Advance-Decline
difference could be negative and the same stocks could fall 6%. The Advance Decline Line will ignore the 3% fall and keep on rising.
• Therefore the only criterion that we should trust completely is whether our own portfolio goes up or down and we have to make
our investment decisions based on this criterion. For example, the HERCULES portfolio has so far not followed the rise of indexes, as shown below.
Concluding, we can place ourselves in stocks with as good fundamentals as possible by strictly following the rules I describe in my post "You can’t beat the market".
However, from now on we must be on high alert and be prepared to hit the sell button anytime (or with nearby stop losses), because the situation can change abruptly
and may lead us to big losses.
I wish everyone good luck.
Prompt: New traders should take some time and carefully read the post entitled 'You can't beat the market' that is located in my profile.
Disclaimer
The author of this text is not an investment advisor. The preceding content is intended to be used for informational and educational purposes only.
It is not an advice or inducement for the purchase or sale of the products mentioned. Before making any investment based on your own personal circumstances,
it is very important to do your own research and analysis and also take independent financial advice from a professional to verify any information provided here.
Note
I forgot to add this useful comparative chart:
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