Trading the Indices on Fundamentals

On the 125th anniversary of the DOW, here are the original 30 DOW stocks of 1928:

Allied Chemical
American Can
American Smelting
American Sugar
American Tobacco
Atlantic Refining
Bethlehem Steel
Chrysler
General Electric
General Motors Corporation
General Railway Signal
Goodrich
International Harvester
International Nickel
Mack Truck
Nash Motors
North American
Paramount Publix
Postum Incorporated
Radio Corporation
Sears Roebuck & Company
Standard Oil (N.J.)
Texas Company
Texas Gulf Sulphur
Union Carbide
U.S. Steel
Victor Talking Machine
Westinghouse Electric
Woolworth
Wright Aeronautical2

Today the DOW was rather lacklustre, it had a 200pt swing and moved between gains and losses to end flat on the day at 2.2% below its all time high.

Russell is at -5.03% (after the rally of 2% today)
S&P is at -1.13%
NQ100 is at -2.65%

Professional market players are increasingly joining the camp of possible run-away inflation nipping Powell in the butt. Where it not for the retail buy-the-dip crowd, market levels would be considerably lower. The Buffett indicator, which tracks the S&P v GDP, stands at 58% above the historical average predicting a y/o/y loss of between 4% to 7% for an investor buying at current levels.
 
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Looking at the 1928 DOW components list, one had to note that the majority of those technologically advanced and largest companies in the world at the time, are no longer in the DOW and in fact, most no longer exist. This statistic needs to be a wake-up call for those investing in the current technologically advanced and largest companies in the world at valuations that by most, are considered ridiculous (Tesla to name one). Dispupters enter every day, founders don't live forever and consumer habits change. Sentiment may well bring a shock to the stars but ignoring the fundaments is what increases the risk... fundamentals still matter and stock prices will tend to gravitate towards these in the long term.
 
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Michael Burry predictor of the crash of the property bubble (the big Short), last week made the prediction that markets will crash and losses will be the size of county economies. A bit dramatic but not impossible and it seems he has put money where his mouth is by shorting several stocks, not least Tesla to the tune of $½b. Dip buyers, aided by loose monetary policies and $4b of helicopter money, have for some time ignored all valuations as well as overvalued and interest rate warnings, pushing the Buffett indicator (tracking S&P v GDP) to 60% above historical averages. Based on this, even a 60% correction is possible, however, the Fed remains in the mix so although many fund managers agree that markets are overvalued and that valuations growing into those values within 10 months or so is pie in the sky, I think 15% to 20% correction is likely. If this is sufficient to wipe out the mindless dip buyers once and for all, losses could go further.
 
60% is simply unrealistic at this stage in the cycle.

15-20% is possible but we will need to see strong follow through this week else its another pullback in a bull trend.
 
Relentless said:
60% is simply unrealistic at this stage in the cycle.

15-20% is possible but we will need to see strong follow through this week else its another pullback in a bull trend.
More...

Fund managers much smarter than me are saying that downward momentum has built, but are saying that this week will indeed be up with the sell-off restarting in the following weeks.
 
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A possible 60% crash? :D

The Property Markets & Stock-markets are just about to enter a huge boom period.

The below link may sway you to a different line of thinking? …

Nothing has suggested a spiralling downward momentum this week?

Corrections inevitably occur to build a healthy forward moving market.

We’ll see how it pans out over future weeks but a correction of 60% just won’t happen under the current climate.

https://propertysharemarketeconomics.com/18-point-6-property-share-market-economics
 
Here's an interesting stat... Companies making the components of the S&P500 used to have an average duration within the index of 60 years, since the big tech revolution, the average life span of an S&P company is now 20 years.

Meanwhile, after Friday's rally, the total S&P500 market cap over GDP has risen to 207.1%.
 
FXtrader8911 said:
Fund managers much smarter than me are saying that downward momentum has built, but are saying that this week will indeed be up with the sell-off restarting in the following weeks.
More...

It's been a month since this post.

You sure they are really that smart? Market perfomance since doesnt seem to agree.

Perhaps they are in fact no better than the rest of the average fund managers with "titles" to their name.
 
Relentless said:
Perhaps they are in fact no better than the rest of the average fund managers with "titles" to their name.
More...
You are probably right... A week after the post, the prediction seemed correct but then the downward momentum faded 2 days later. All one can do is compare the levels with historical prices when the fundamentals matched the current fundamentals. These same people are still saying that prices should not be as high as they are because earning will not be rising as fast as the stock prices rise are indicating, however, to my knowledge, only Michael Burry had the balls to actually short the market, the others roll with the flow but remain cautious (as evidenced by the VIX remaining elevated compared to the 2019 market highs). The Buffett indicator now at 210% compared to the 140% historical average also say the prices are too high. Timing is always the wild card. The last time we saw relentless buying without as much as a 2% dip was 4 years ago, it lasted 12 months then came to an end.
 
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