Trading the Indices on Fundamentals

Although most companies are unable to give forward guidance for Q2, some analysts are estimating that current market prices reflect a PE multiple of 40. This is more than double the average during the best of times.

Jim Cramer has said on CNBC that a lot of the high prices can be attributed to the conditions created by the coronavirus such as lack of live sport, inability to go out and fiscal virus bonuses coupled with accessibility to commission-free trading, this has caused many millenniums to turn traders taking excessive risk. Cramer goes on to say: "Traders have even bid up the stocks of companies that have filed for bankruptcy or are expected to do so soon", he warned that many of those traders were likely to lose money in these trades.

On Tuesday, I exited my remaining NDAQ longs at 10,002, I am now net short in the NDAQ, DOW and DAX, neutral in the Russell, S&P and FTSE, long in the ASX.
 
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FXtrader8911 said:
..."Traders have even bid up the stocks of companies that have filed for bankruptcy or are expected to do so soon", he warned that many of those traders were likely to lose money in these trades.
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Indeed. Makes you wonder what will happen when all the longs in a company like Hertz rush for the exit.
 
The last time US markets were at current levels, the VIX was at 14 and gold below 1,600. Currently, the VIX is at around 26 and gold above 1,700, further, the VIX Jul futures are 2 whole units above the Jun price. This seems to indicate that hedging against a sell-off is high.
 
Pointers for the week were indicating a sell-off, Thursday gave that, however, even the almost 2,000 pts the DOW gave up are insufficient to put markets at a fair value. The VIX surged 40% and widened the gap between the futures, I am expecting further downside as long the home-bound public turned traders eager to blow their fiscal bonuses don't interfere by placing ridiculously high bids on everything without much knowledge on what they are doing. Imagine TESLA now having a market cap equal to TOYOTA, a company some 100 times TESLA'S physical size and production.
 
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Looking at the S&P level today that is 100pts above this time year, Friday's rally does not make much sense to me.

This time last year unemployment was at 3% (the level that's considered to be full employment) with a rosy economic outlook, just about every company had beat earnings estimates for Q1 and were giving forward guidance of growing earnings.

Today, we are in a recession, unemployment is at 20+% and many companies have filed for bankruptcy or warned that they are likely to do so. Almost all companies expected to survive are saying that earning will be down substantially, not able to give figures due to the many uncertainties, further, even pure technicians that just look at price action disregarding the economic or any other fundamentals are saying the S&P should be below 2,800.

The day of reckoning that will terminate the disconnect between the economy and markets prices could well come by September and probably sooner.
 
Well, the story repeats... another open-air market has become the epicentre of a renewed virus outbreak in China. You'd think China, declaring itself a developed nation, would stop 3rd wold practices.

Plenty of uncertainty for markets to digest, not least such headlines as "Overseas travel collapsed by 99.7pc in April", Friday's rally is likely to evaporate especially considering that travel & airlines were bid-up on Friday. Hard to figure out what people are thinking when buying shares in destroyed and bankrupt companies.
 
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FXtrader8911 said:
You'd think China, declaring itself a developed nation, would stop 3rd wold practices.
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With the current guy still living in the 50's running the show, this is unlikely to happen. A 2nd wave of covid is probable so I guess it is then a race to see if a vaccine can catch it in time.
 
Not too long ago, CNBC announced their 2020 Disruptor 50 companies. These are companies whose breakthroughs are influencing business and their market competition is at an accelerated pace. They were selected on their financial strength and on expectations that they were poised to emerge from the coronavirus pandemic with tech platforms that have the power to dominate.

Last week 5 of those companies closed their door, this is one more indication that the virus is capable to disrupt the disrupters and no one actually knows how widespread the damage really is.

Tue saw the DOW have 1,000 pt swings while the Fed chair, Jerome Powell, fuelled optimism with his testimony to the Senate, while, and in contrast, rising Covid-19 infection rates appeared to support the US dollar and gold as some investors sought safety. Asia Pacific markets are bound to have mixed sessions as conflicting currents drive trading.
 
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Whoever said this is a genius: "A market “defying” fundamental factors can continue to do so until it doesn't. It’s not always the fundamentals that count, The elements that capture the player's imagination is called sentiment and sentiment determines the short term direction."

The operative words are of course "short term direction"

Markets are efficient, however, sentiment can make them look inefficient. At the end of the day, the value of a company must reflect its current worth plus a factory for expected growth. Fundamentals do matter, ignoring them could well lead to losses or lost opportunity. Warren Buffett has made a fortune by not missing opportunities... currently he is selling, not buying.
 
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