After Dow 25,000, the Party Has to End. But When?

[SirLinksALot]

SOURCE: NEW YORK TIMES

URL: https://www.nytimes.com/2018/01/04/business/market-dow-2018.html?_r=0

by James Stewart


At over 3,000 days and counting, this bull market has been one of the longest on record, as the current eight-year run trails only the boom from 1987 to 2000.   

In the midst of a long-running bull market that is now reaching momentous proportions, most investors may well have forgotten that just two years ago, during the first five trading days of 2016, the market dropped 6 percent. It was the worst five-day start to a year ever and supposedly a harbinger of bad times.

We know where that ended. Spurred by Donald Trump’s election that November, market indexes surged to record levels and went far higher this year. The Standard & Poor’s 500-stock index gained 19 percent in 2017, the Dow Jones industrial average rose 25 percent, and the technology-heavy Nasdaq composite leapt 28 percent.

There wasn’t a single day last year when the S&P 500 fluctuated more than 2 percent, a level of low volatility unseen since the mid-1960s, according to James Stack, a market historian and president of InvesTech Research.

In a rare convergence, investor euphoria spread across the globe. A measure of market performance, the MSCI All Country World Index, gained 22.7 percent last year, closing at a record high. And so far this year, stocks have continued their advance. On Thursday, the Dow broke the 25,000 barrier for the first time, and technology stocks are soaring to new highs. Cryptocurrencies like Bitcoin are adding a whiff of bubblelike mania.

And that may not be such good news for investors.

“If there are any certainties, one will be that this party will eventually come to an end,” Mr. Stack said. “A correction would be healthy. The longer we go without one, the greater the risk this will end badly. A lot of people will get hurt. And when it ends, it will end badly, and with high volatility.”

That doesn’t mean the end is imminent, according to Mr. Stack and other investment managers and market experts I interviewed this week. All of them successfully navigated markets last year, when the greatest risk was being underinvested.

“Everybody thinks the market is overvalued,” said Jerome L. Dodson, the founder and president of Parnassus Investments. “So do I. I’m expecting a correction, but I was expecting one after Trump was elected. I was wrong. The market can keep going up even when it’s overvalued.”

(EXCERPT) CLICK ABOVE LINK FOR THE REST....

[SirLinksALot]

Here's another similar opinion


Here’s why U.S. stocks might finally get a 10% correction this year

SOURCE: https://www.marketwatch.com/story/us-stocks-might-finally-get-a-10-correction-this-year-2018-01-04

(EXCERPT)

About a year ago, the Profit Radar Report stated that: “For the first time since 2013, and for the 18th time since 1950, the Santa Claus Rally (SCR), First 5 Days of January (F5J) and January Barometer (JB) were all positive (average return: 18%).”

Based on the composite barometers, there was a 100% chance that 2017 would be an up year (with an average return of 18%). So far for 2018, the SCR is positive.

Elliott Wave theory

Elliott Wave theory (and money flows) correctly indicated that the February 2016 low would be significant, and was to be followed by a strong rally. (See February 2016 article: “Bear market risk is zero based on this rare but consistent pattern.”)

The S&P 500 surpassed our — at the time ridiculous — upside target of 2,500 points, and demolished every other upside target since. One major weakness of Elliott Wave theory is unpredictable wave extensions, such as the current one.

With or without final blow off, this wave 3 (see wave labels on first chart) will end and lead to a choppy pullback (green target zone). Depending on the final wave 3 high, the wave four downside target could be around 2,400.

Money flows

Money flows remain strong, which means that any correction will be only temporary and followed by further gains. (More detail available here.)

Cycles and seasonality

Cycles and seasonality show risk for the first half of 2018.

Conclusion

Risk is rising, and, perhaps after a run to 2,800 points, the S&P 500 is likely to run into some trouble and see the first 10% or so correction in over 10 years. Although this bull market is not yet over, 2018 may enter the history book as a fairly flat year.

[SirLinksALot]

Wall Street missed every equity bull market then inevitably joined the party too late and serve as the buyers of last resort that soak up the supply of overvalued garbage being dumped by hedge funds, banks and other institutions at end of every bubble. Showing up to the party too late and then riding the crash is just kinda their thing.

As the Wall Street Journal pointed out recently, that cycle appears to be repeating itself with the current equity bubble. Well, only the first part, because no matter how high the market rises, retail investors just can't stop selling. In fact, since 2012 retail investors have pulled nearly $1 trillion in capital from U.S.-focused mutual funds.

NOTE THIS:

Here is a quote from the WSJ: https://www.wsj.com/articles/as-dow-tops-25000-individual-investors-sit-it-out-1515099703

The most dedicated buyer of U.S. shares has been the companies themselves. Corporate stock buybacks started ramping in 2009, hitting a record of $572 billion in 2015, before leveling off, according to data from S&P Dow Jones Indices. With the new tax law cutting the corporate rate to 21% from 35%, many analysts expect companies will use at least some of that cash to buy back more of their own shares.

[Applewood]

I know the good times will end.  Just so we don't have a repeat of 2008, I'll be good.

thanks @SirLinksALot

[Frank Cannon]

After Dow 25,000, we at the NY Slimes are hoping like hell the Party Has to End. But When?

There. Fixed it.