Having been in the investment arena for 40 years or so you learn that it is true, history repeats itself. That’s why people who use technical analysis as their main investment tool have become pretty successful, over time. Very short-term (day trading) technicals I don’t think hold up as well. Too many factors can interrupt the natural technical trading pattern technicians believe happen every day. The latest example is the short squeeze in Gamestop. If I look back, I am sure I can find hundreds of examples of failure in technicals during a trading day.
Longer term, I believe it’s viable and with discipline, can be a very profitable way to trade. Personally, I like fundamentals with some technical analysis to try to determine the best place to jump in and jump out. That’s just me.
When looking at the market, be it the S & P or the Dow you have to wonder. Are there some technicals we are not seeing here? Certainly, the fundamentals should be telling you maybe it’s time for a breather. Every day, it seems, we are setting new records and yes, the economy is doing better. Yes, the economy is expanding at rates we haven’t seen in quite some time (fifty years or more) and we all know that that growth is unsustainable. We aren’t China for God’s sake.
So, why does this bull market seem to have more legs than the Kentucky Derby? Why have we resumed what was being hailed as the “Greatest Bull Market In History”? Why is money still flowing into equities, new and old?
The old maxim about markets generally pricing six to nine months in the future can’t hold up forever, can it? Apparently if you look historically, it can and it has.
Look at any chart of GDP, S&P stock prices, business spending, income growth, debt and government spending. Every single one of them has gone up. Over the last 75 years, not one indicator of growth has gone down. There have been recessions of course, but their duration has been relatively short. The vast amount of time however, things increase. Incomes, amount in savings, amount of debt, stock prices, investments of almost any kind. You name it, it’s gone up.
With all of that growth over time, stock prices should follow suit and they have. That’s not technicals, thats fundamentals. There will be periods of consolidation. There will be crashes, short term. There will be flights to safety. All normal in the course of doing business I say. Yet, things will return to normal and go up.
The next leg of that horse is in play and we are once again witnessing records being broken on a daily basis. The six to nine month outlook still looks very good as we gain more traction with the vaccines in the US and Europe. Getting major populations in South America and India vaccinated will be a much larger struggle but it will happen. Restrictions are being lifted. People are starting to travel for business and pleasure and we will probably be dealing with Covid-19 for years to come but the thing that spooked the markets so much last March, the not knowing, is gone.
I will reiterate, I still believe we are due some corrective action. Every healthy bull market leg has had at least one correction to rebalance portfolios and give investors a pause. The question remains, was last March that pullback?
I agree and these values that I read last week: More money has gone into stock-based funds over the past five months than the previous 12 years combined, according to Bank of America.
In raw numbers, $569 billion has flowed into global equity funds since November, compared with $452 billion going back to the beginning of the 2009-2020 bull market.
Which also makes me wonder about that "corrective leg".