Archive for the ‘Stocks - U.S.’ Category

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Monday, June 26th, 2017

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Are Stocks In A Bubble That Is About To Burst?

Friday, June 23rd, 2017

Bubbles Are Characterized By Building Euphoria

During investment bubbles, the gains over the years reach near-silly levels. For example, the last 17 years of the dot-com bubble featured an 1,800% rise in the NASDAQ (first chart below). With an 1,800% on the books, some investors made numerous extravagant purchases (super cars, beach houses, and fur coats). A NASDAQ investor who looks back 17 calendar years in 2017 is currently sitting on a gain of 24% (second chart below).

Euphoric Gains vs. Tepid Gains

Not many people have made extravagant purchases over the past three years based on their investment gains. No one is euphoric with a 24% gain that was earned over a 17 year period; the term disappointed seems a better fit.

Does History Say The S&P 500 Bull Market Is Living On Borrowed Time?

A headline such as “Happy Birthday Bull Market, It May Be Your Last” implies that a bear market is just around the corner. This week’s video looks at the history of secular trends to water test the “this bull market is living on borrowed time” theory. After reviewing the historical facts, you can make your own call.

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How To Develop A Euphoric Investment Climate

It is easy to see how a 1983 NASDAQ investor became irrationally exuberant over time. An investment in the NASDAQ in 1983 produced, for the most part, a source of positive investment feedback for 17 years. During this period, anyone with an even remotely long investment horizon was making money, which eventually led to the bubble trademark expression “this time is different”. In the charts below: (1) relative to the cost basis, the investment showed a gain when the NASDAQ was inside the green box, (2) relative to the cost basis, the investment was at a loss when the NASDAQ was inside the red box.

Getting Back To Break Even

Over the past 17 years, the more common expression has been “I’d be happy just to get back to where I was before”, which was not heard during the final euphoric stages of the tulip bulb mania, dot-com bubble, or housing bubble.

Looks More Like A Generational Opportunity

As outlined in detail on May 30, 2016-17 looks more like a major bullish turn than a major topping process. Other recent posts featured bullish-leaning data related to volatility and very-long-term breakouts in semiconductors.

What Does History Say About Valuations?

Valuations are a reasonable area of concern. While the conclusions may surprise some, a review of historical facts on January 7, 2017 moved those concerns out of showstopper territory.

Link To See It Market Post

Wednesday, June 21st, 2017

LINK: How Does 2017 Compare To Stock Market Peaks In 2000 And 2007?.

Will Narrow Framing Cause Many To Miss A Generational Rally In Stocks?

Monday, June 19th, 2017

We Tend To Make The Same Mistakes Over And Over

If you are perplexed by the post-election strength in U.S. stocks, it may be helpful to take a giant step back. From The Wall Street Journal:

Many of the financial mistakes people make are caused by a fundamental shortcoming: They can’t see the big picture. In behavioral economics circles, this is known as “narrow framing”—a tendency to see investments without considering the context of the overall portfolio. Many people are vulnerable to it.

Technology stocks provide an anecdotal example of narrow framing. As shown in the chart of the NASDAQ 100 ETF (QQQ) below, the short-term view has been marked by unsettling volatility.

However, if we look at the NASDAQ from 60,000 feet, we see a much more encouraging picture. The narrow view says “tech stocks have gone up for years and may be in a bubble”. The longer-term view says, “the NASDAQ was able to make it back to the highs made in 2000, and recently broke out of a 20-year period of consolidation.”

The Three Most Important Questions For Investors

This week’s video looks at long-term economic and financial market evidence to address the question “does history support the notion that the world is on the brink or that things tend to gradually get better over time.” The video covers numerous charts to assist in combating the human tendency to focus on narrow timeframes.

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Short-Term Focus Can Be Harmful

With smart phones and computers making balances, quotes, and P/L accessible 24-7, it is easy to fall into narrow framing mode. From The Wall Street Journal:

The easiest way to achieve your long-term goals, and avoid focusing on short-term losses, is to check your portfolio less often. While it’s now possible to get instant updates on the latest swings of the market, this additional information can lead to narrow framing. This is what the best investors do: They seek out the big picture. And then, once they’ve found it, they remember not to look at it too often.

What about earnings and valuations? Both are reasonable areas of concern. While the conclusions may surprise some, a review of historical facts on January 7, 2017 moved those concerns out of showstopper territory.

The Three Most Important Questions For Investors

Friday, June 16th, 2017

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How Concerning Are Predictions Of A Stock Market Crash?

Monday, June 12th, 2017

Forecasting Is Difficult At Best

Typically, several times a year headlines contain predictions about a coming stock market crash. Calendar year 2017 is no exception with recent bearish calls coming from Jim Rogers and David Stockman.

Since markets are an extremely difficult and complex animal, our purpose here is not to criticize anyone, but rather to highlight the “grain of salt” nature of any stock market forecast. The dated headlines below featured similar gloom and doom calls, and yet, global markets remain near all-time highs.

The headlines above appeared on BuisnessInsider.com and MarketWatch.com. It should also be noted that crash probabilities have hit “pay attention” levels a handful of times over the last few years. For example, the market’s risk-reward profile in October 2011 and February 2016 left the door open to a multiple year bear market. In both cases, stocks righted themselves and the hard data began to improve in a meaningful way.

An Extremely Rare Stock Market Shift Recently Occurred

This week’s video covers a rare market shift that has only occurred two other times in the past 28 years. The video also compares 2016-17 to the 1987 crash, dot-com peak, and financial crisis to help us better understand the odds of bad things happening relative to the odds of good things happening. After reviewing present day facts relative to historical facts, you can make your own call.

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Scary Headlines Are Not Uncommon

Given the difficult nature of attempting to predict a complex future, our approach will continue to focus on the facts we have in front of us today, rather than headlines similar to the one below that was published on April 11, 2014. Markets can do anything at anytime, which highlights the need to remain flexible and open to all outcomes, from extremely bullish to extremely bearish.

Could A Multiple-Year Rally Be In The Cards?

Instead of a crash, is a surprising multiple-year rally within the realm of reason? As outlined in detail in a May 30 article, 2016-2017 looks more like a major bottom than a market that is forming a major top.

Market Shift Has Occurred Twice In Last 28 Years

Friday, June 9th, 2017

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Will Small Caps And Mid Caps Continue To Underperform?

Wednesday, June 7th, 2017

Today’s post can be found on See It Market.

Low Volatility And Stock Market Risk

Monday, June 5th, 2017

A Sign Of Complacency?

Markets have experienced very low volatility for the first five months of 2017. What does history tell us about low volatility markets that are also posting new highs?

Typically, Very Good Things Happen

According to a research note by Sam Stovall of CFRA (via Urban Carmel):

“So far, 2017 has seen 17 new all-time closing highs for the S&P 500 and just 10 days where the index moved more than 1 percent in either direction. That kind of higher highs with low volatility always – yes, always – has been positive for the market, according to Sam Stovall, chief investment strategist at CFRA. The previous 17 times that has happened, the market has averaged a 19.4 percent gain, with advances happening 100 percent of the time.”

Sector Says Be Open To Enormous Upside In Stocks

Does it seem like the markets have been extremely resilient in recent months? This week’s video, which features some of the most interesting charts on Wall Street, provides some insight into the market’s long-term potential.

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Big Picture Remains Solid

Trends reveal a lot about the never-ending battle between the conviction to own stocks and the conviction to sell stocks. When the market’s net aggregate opinion flips to “conviction to sell”, trends roll over as they did in 2000 and 2007. All the charts below show the S&P 500’s 100, 200, and 300-day moving averages.

As outlined in detail on May 30, the present day market looks more like the early stages of a new long-term bullish trend rather than the early stages of a long-term bearish trend.

While it is possible the 2017 chart will morph into a more concerning look, the facts we have in hand continue to support a favorable long-term outlook for equities.

Sector: Be Open To Enormous Upside In Stocks

Friday, June 2nd, 2017

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