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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Benkea who wrote (24966)	9/5/1999 11:55:00 PM
From: Tai Jin	Read Replies (1) \| Respond to of 99985

That's very interesting. I agree with what he is saying, that increased money supply is driving up the market faster than can be sustained for a long period of time. As long as investors are willing to pay higher prices the market will go higher. But at the same time the increase in valuations is outstripping the increase in earnings of these companies. Should stock valuations command such a premium to business fundamentals just because there is more demand for the stock? No, eventually an equilibrium will be reached by an increase in the number of shares issued (and by general price inflation as he mentions) counteracting the increased demand. Thus, the valuations must eventually reflect economic reality. I would also conjecture that a rise in the market is sustainable if it is slow and steady. But this market is experiencing almost exponential growth (at least in certain sectors). And one of the symptoms of such unsustainable growth is increased volatility. This volatility is a reflection of the nervousness of the investors. Investors are rightfully concerned that prices are too high or rising too quickly and are out of line with fundamentals and so many conditions have to be just right for prices to continue to rise. My belief is that the volatility will reach maximum intensity at the market top (a blow-off top) followed by a precipitous and rapid decline. The damage will be done, and it will remain to be seen whether the market will be able to recover quickly (i.e., it was just a correction) or whether it will continue to decline (i.e., become a bear market), but my guess is that the market will not be able to recover so readily from such a fall. Of course, when this will happen is anyone's guess, but I think it will happen soon (within a year or six months) as evidenced by the record volatility. ...tai