Hi Thean, thanks for your post concerning time. Here are some musings related to the recent discussion and my statement that fundamentals win out in the long term.
If I am correct in my assessment of the fundamentals, then the present market appears to be ignoring them. How long will that last? How long will it take for the fundamentals to win?
But is the market ignoring the fundamentals? Actually, I think not. This has been a record setting bull market by any standard of measurement. You can't expect a secular trend of this type to turn on a dime. Deteriorating fundamentals stop a bull gradually, causing it to form a top.
The bigger the bull the bigger the top. The bigger the top the bigger the drop. (repeat five times fast:)
One month ago the Dow was trading at the same level it was 15 months prior. Greatest bull market ever going nowhere in 15 months? Something is going on. Now, with a record setting rally we're back to the same level as 7 months ago. The Dow has gone nowhere in seven months and everybody's euphoric about this new era in which fundamentals are irrelevant. Meanwhile, there's a good chance that we are forming a neckline at 7400 that will extend in excess of 18 months. The bigger the top...
I guess my argument is that something appears to be stopping this bull market, and it's certainly not a lack of investor enthusiasm.
If we don't go on to new highs then the fundamentals are already winning and the appropriate question becomes "how long until the market declines at a rate commensurate with the fundamental deterioration?".
That's hard to answer, but based on your post I would guess it is a much shorter wait than you think. You suggested five years for matters to play out. I think that in five years we will already be in the next bull market. For Luc's style of investing, if he goes 12 months without making money, then it is almost certain that he has misread the fundamentals. In fact, if this market makes new highs, then I'll be re-examining the fundamental situation and looking for errors in my current analysis.
In this situation of unprecedented valuations, it is likely to drop extremely fast. Just when you think it will never drop and fundamentals are meaningless, it happens and it happens very quickly. At first sight it will surprise everyone, at second thought it will surprise no one. And when it goes below 7400, today's most euphoric bulls will know that it's a bear market. After crashing, markets typically spend much more time rising on a technical bounce. The first portion of the bear market could easily have more up days than down days, but of course, the net change will be negative.
Volatility increases dramatically in a bear of this type, and ironically, the steepest short-term rises occur in bear markets. In fact, the type of rally that we are seeing right now is not consistent with the widely held view that we are in a bull market.
If I'm correct, the continued increase in volatility should be a boon to your trading style. I wish you the best of times.
OO7 |
