A mixed week with the Dow Jones up 393 points (+1.56%) and the Nasdaq down 83 points (-1.06%)
This week was incredibly important for the stock market. I am not entirely sure how long, but it has been quite a while since we have seen such a significant % divergence between the Nasdaq and the Dow.
That is exactly what we talk about in our weekly update and what that means for the stock market. If you would like to learn more, and/or what the stock market will do next, in both price and time, please Click Here
This week’s market action in Facebook (FB) is perfect example of “Price is what you pay and value is what you get”. As we have discussed earlier in the week Facebook was the largest holding across the board for all hedge funds and most likely other institutional investors.
Do you think any of these money managers were concerned about fundamental analysis? Not a trick question. Do you think they cared that they were paying 15 times revenue for a highly speculative company that is being taken over by “old people and cats”. Do you think they care that they are still paying 100+ times earnings for highly speculative small cap companies (Russell 2000)
Of course not.
The situation we are witnessing today is identical, in terms of dismissal of time proven fundamental analysis, to what we have seen at 2000 and 2007 tops. Perhaps no one does fundamental analysis better today than John Hussman. His latest market analysis is out, it is full of wonderful information and we highly encourage you to read it in full.
Market returns and economic growth have underlying drivers. At their core, long periods of extraordinary growth and disappointing collapse reflect large moves in those drivers from one extreme to another. Extrapolation becomes a very bad idea once those extremes are reached.
The present combination of record valuations and divergent market internals, coming off of the most wicked ‘overvalued, overbought, overbullish’ extremes in history, creates a danger zone that will not be resolved until some combination of those factors – valuations, internals, and overextended conditions – shifts to a less dangerous mix.
Fundamental analysis is wonderful in helping you identify larger trends. Yet, if you would like to concentrate on immediate market moves, timing analysis is a must.
If you would like to find out what happens next, in both price and time, based on our timing and mathematical work, please Click Here.
