MarketProphet1 wrote: Why the Friday Bounce? I know you are thinking the bulls are back…but they aren’t. What happened on Friday was a massive number of short sellers covering their positions before the end of the week. Short Sellers like to open and close their positions in stages as stocks drop to lock gains and limit risk. That pop on Friday gave the false impression that we are on another bull run…but keep in mind the fundamentals haven’t changed.
Everything across the whole stock market is priced in – in fact it is way over priced. What are the bulls expecting the happen? New earnings reports to come out - they are already priced in. Stock goes down – Look at BCE last week. The only way the S&P 500 is going is down!
The Market is forward looking and this is what it sees….
1) Trump tax is now in. Corporate earning improvements are now priced in too. The trump tax saves about 20% - 30% on corporate earnings but the
Dow has surged more than 31 percent since Trump's inauguration on Jan. 20, 2017.
2) Fed is raising rates (when they raise rates market goes up, when they stop, it crashes - true of almost all of the last major crashes)
https://www.cnbc.com/2018/02/08/heres-what-happens-to-the-market-during-major-periods-of-rising-rates.html 3) Importantly the fed said that they are no longer going to reinvest in bonds via quantitative easing program - this is the biggest issue affecting the market right now, reducing liquidity in the market on a massive scale over the coming year when that starts and it has smart money people nervous. This is affecting most of the world markets as most leaders are pulling back from QE in one shape or form.
https://soundmindinvesting.com/articles/view/another-domino-falls 4)Nafta outcomes are uncertain (albeit maybe temporary) and are impacting valuations of companies that do business in the US / Canada & Mexico.
5)Canada pipelines not getting built so we have a glut of oil and cannot take advantage of the price premium right now. Oil companies outside Canada doing well. We have also seen the frackers ramp up during $65 oil, which has killed off the run. Technology has changed and is rendering Canada irrelevant with respect to oil.
6)Trump tax expected to hurt Canada investment over next few years because we are not being competitive. (In fact they just started increasing the corporate tax in Canada) - See Morneau tax plan.
7) Rising interest rates are making REIT, utility and other staple dividend stocks less attractive. Particularly ones with debt. Just look at BCE. Positive news cannot even lift these stocks any longer as fund manager de-risk their portfolios.
8) As fear grips the market Treasury bond yields rise. They are also rising because they need someone to buy all the bonds now that the fed will not. A massive over supply. If the risk free rate rises, equities will continue to drop as everyone moves to less risky, less overbought options.
https://www.forbes.com/sites/investor/2018/02/11/the-end-of-the-36-year-bond-bull-market/#7872eae82b7a 9) The fear index – VIX is at all time highs, in fact several funds have been suspended from trading it after others went belly up on the surprise shift.
https://www.cnbc.com/2018/02/09/fidelity-is-trying-to-save-investors-from-blowing-up-their-accounts.html 10) Real-estate is being propped up by foreign investors, which has made a lot of money for us however it also has Canadians at a debt ratio of $1.70 for each dollar earned. If real-estate doesn’t continue to go up, Canadians can’t use the property to pay for extras. Also rising interest rates, OSC banking changes and low job report will make housing unaffordable for many. (except wealthy foreign investors)
https://www.theglobeandmail.com/real-estate/vancouver/vancouver-housing-the-view-fromsingapore/article37882051/ All MJ stocks are way overshot - and the S&P 500 going down will just be amplified in the MJ areas. In fact last week the news that CSA will not delist US stocks didn’t even get noticed, they dropped almost 5% out of the gate. Poor investors who don't know anything about the overall stock market will cling to their individual stocks claiming it will go back up but the red tide is already moving out and relative valuations are being impacted. If everything goes down, so does your overpriced relative valuation, just much faster....
The economy is
not strong, we are in a massive asset bubble that many are trying to get control of however the only way this might work itself out is a great big POP!
So what are you going to see? In case you haven’t noticed all stocks are impacted by Dow futures and VIX because computer trading algorithms are linked to these items to help the computer make trading decisions. It might not seem rational to you but that is how it works. Individual stocks will go down. We will see Continued weakness, drops in the Dow, short sellers moving in and closing off their positions at key points (like 200 day moving average, 150 day moving average etc) which will look like small bull rallies but really they are designed to suck in more people into a bull trap, only to drop even more. The Dow couple be heading south of 15000 – so buckle up.
Happy Monday. Be careful out there. The greater fool style of investing where stocks are bought at 30x or 40x earnings hoping that someone else will pay 50X is ending…. It is back to fundamentals after a major crash…(not correction)
THE BEAR IS BACK!