I vote B on the MDA poll because:
First of all, 3 obvious reasons already known to this thread:
1) "3 steps and a stumble." Current interest rates are too low for such a hot economy.
2) falling dollar makes American investments less attractive, and gives another reason to raise rates
3) Seasonality. Market only rises in September 40% of the time (Zwieg, Winning on Wall Street) and biggest crashes happen in October, plus there's the parallel with last year.
Plus some new reasons:
4) The long-term uptrend that started in the beginning of 1995 is already broken.
siliconinvestor.com
Long-term growth is usually exponential. This is a log-linear chart so exponential growth plots as a straight line. 1995 saw a break from a high but sustainable growth rate to an even higher, totally ludicrous growth rate of about 25% a year. In 1998 it stumbled, then rushed to catch up, didn't quite reach the long-term trend line, and now it's falling away from it again.
5) Final year of a classic bubble pattern. Refer back to the chart referenced above. The Dow had a 3-fold increase from 1925 to 1929. The Nikkei tripled between 1986 and 1989. Now we've seen a 3-fold increase in the S&P 500 from 1995 to 1999. If the pattern holds we crash this fall. Some people (especially Heinz) see this pattern but expect the uptrend to continue for a while yet before we crash. I've heard two reasons for this: (a) that we haven't yet reached the excesses of 1929 or 1989, and (b) that this bubble will be the most excessive ever. I think (a) doesn't fit the evidence, and (b) is just a wild speculation. We haven't reached the P/E of the 1989 Nikkei (peak 60 I think), but last I heard we were at 37 which completely blows away the previous all-time high for the S&P 500 of 23 (again Zwieg is my source for this). That's right, 23. The P/E was about 20 in 1929. Also I think the P/E of the Nikkei reached its peak while stock prices were falling, because earnings were falling even faster (somebody correct me if I'm wrong on that), and the Japanese tend to under-report earnings for tax reasons anyway, so P/E of Nikkei may not be comparable.
6) Increasing bearish comments from popular analysts. These guys are the leaders of public opinion, and the public has to remain basically bullish to support such high valuations. Bearish sentiment is a bullish contrarian indicator when we're at the bottom, but when we're at the top it's a very bad sign.
Sorry if these comments are a waste of time for daytraders but I assume you tuned out already.
Best of luck to everybody and thanks for all the great posts here.
Fun-da-Mental |
