Black Monday

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I know master winner.....I am pretty scared now to buy and hold any shares

People have been saying that since March 23rd, saying this is a sucker rally, saying there is no V shaped recovery possible.. all the while every day the opposite has been happening and they have missed out on nearly 40% gains since the low. Given there is not much longer until back to pre-covid levels, how much longer do people hang on desperately hoping for a crash to get back in?

[BlackPeter]

People have been saying that since March 23rd, saying this is a sucker rally, saying there is no V shaped recovery possible.. all the while every day the opposite has been happening and they have missed out on nearly 40% gains since the low. Given there is not much longer until back to pre-covid levels, how much longer do people hang on desperately hoping for a crash to get back in?

Market is always most exuberant close to the peaks ... take care out there.

How long do you think company earnings and share prices can stay divorced from each other?

[BlackPeter]

Just noticing: CNN Fear & Greed Index moved up to 60 (i.e. moderate greed). Not the highest I remember, but pretty remarkable for a situation where company earnings for many industries are squashed. How high can it go before it drops?

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Market is always most exuberant close to the peaks ... take care out there.

How long do you think company earnings and share prices can stay divorced from each other?

However long they've been divorced for already, 3 years? So, another 3 years

[Entrep]

how much longer do people hang on desperately hoping for a crash to get back in?

Who's desperate? Plenty of things to spend money on other than overpriced shares!

[BlackPeter]

However long they've been divorced for already, 3 years? So, another 3 years

Not quite sure where your three years come from, but I give you that the correlation between Stock Market Index (here S&P 500) and the relevant PE was over the last 20 years somewhat counter intuitive (blue line is the PE, black line is the index):

SUP500 vs PE.JPG

(chart courtesy to : https://www.marketwatch.com/story/th...ght-2020-05-09)

For long periods it looks like the higher the PE (i.e. the lower the earnings), the higher the Index, which does not make sense in a rational market.

Obviously - there are other factors in the play like reserve banks inflating equity prices by slashing interest rates and by sprinkling free money (QE) around. Easy to see in the chart how stocks getting dearer after the GFC ...

The questions I see are:

1) Given that stock prices don't follow any natural laws ... at what stage will the majority of stockholders think that the PE ratio they are paying is too high? In the dotcom bubble it was 24, in the GFC it was 15 and now it is close to 21.

2) Is the current PE ratio (21) which is still based on last FY's earnings really reflecting the forwards earnings, or is it more likely that earnings crash rather than go up (or stay constant) from here? If earnings go down by 50% in average than this would double the PE. Is a PE of 42 still a sensible price to pay for a stock?

Anyway - what I can see in this chart is that the PE (again, based on last years earnings) is already coming close to its 2000 peak (dotcom bubble), while the index is basically at an all time high.

I think this is a reason to be cautious, but if you think that trends only can go into one direction, then good luck with your investment strategy ... ;

[Oberon]

I was in the doom merchant category, if you want to use that terminology. DOW has hit it's 200 day MA and nothing is rattling this rally, it seems.

So now, I'm thinking - could it be? Are we actually going to put in a V-shaped recovery?

The very fact I've caught myself thinking that is enough to keep me on the cautious side.

Shorting exacerbates the problem; they pile on thinking it's the peak, the market does a number on them and we get another short squeeze.

You do have to wonder if something has to give, eventually.

[Sideshow Bob]

Who's desperate? Plenty of things to spend money on other than overpriced shares!

Yeah, exactly! I bought some new golf clubs yesterday!

[clip]

Not quite sure where your three years come from, but I give you that the correlation between Stock Market Index (here S&P 500) and the relevant PE was over the last 20 years somewhat counter intuitive (blue line is the PE, black line is the index):

SUP500 vs PE.JPG

(chart courtesy to : https://www.marketwatch.com/story/th...ght-2020-05-09)

For long periods it looks like the higher the PE (i.e. the lower the earnings), the higher the Index, which does not make sense in a rational market.

Obviously - there are other factors in the play like reserve banks inflating equity prices by slashing interest rates and by sprinkling free money (QE) around. Easy to see in the chart how stocks getting dearer after the GFC ...

The questions I see are:

1) Given that stock prices don't follow any natural laws ... at what stage will the majority of stockholders think that the PE ratio they are paying is too high? In the dotcom bubble it was 24, in the GFC it was 15 and now it is close to 21.

2) Is the current PE ratio (21) which is still based on last FY's earnings really reflecting the forwards earnings, or is it more likely that earnings crash rather than go up (or stay constant) from here? If earnings go down by 50% in average than this would double the PE. Is a PE of 42 still a sensible price to pay for a stock?

Anyway - what I can see in this chart is that the PE (again, based on last years earnings) is already coming close to its 2000 peak (dotcom bubble), while the index is basically at an all time high.

I think this is a reason to be cautious, but if you think that trends only can go into one direction, then good luck with your investment strategy ... ;

My 3 years was purely a gut feel, with no evidence to back it up, however you asked so I answered. Based on your chart I potentially wasn't far off as it looks to be around 3-4 years ago the S&P divergence from PE really kicked off

[BlackPeter]

My 3 years was purely a gut feel, with no evidence to back it up, however you asked so I answered. Based on your chart I potentially wasn't far off as it looks to be around 3-4 years ago the S&P divergence from PE really kicked off

I don't think you understand the chart. Have another look.