The Coming Blow-off

11 January 2021 By PDSNET

At the start of 2021, it is as well to stand back and consider the context of where world markets are as they slavishly follow Wall Street up to new record highs.  Consider the 12-year chart of the S&P500:

S&P500: October 2008-January 2021. Chart by ShareFriend Pro.

 

The chart shows that the great bull market which began in March 2009 is on-going. It is moving within a clearly defined channel. The upper channel line is established by no less than 8 touch points (marked with the red arrows) - and the lower channel line is exactly parallel to it. What is interesting is that this lower parallel channel line precisely connects the initial low of March 2009 with the COVID-19 low of March 2020. This is not just a coincidence, but a strong confirmation of the validity of channel lines as a method of analysis.

Fundamentally, the strong upward trend is being driven by Biden’s clear win, both of the presidential election and now of control over the US senate. This clears the way for further massive stimulation of the US economy and share prices are eagerly anticipating this.

The bulls have taken heart from the fact that the market has, once again, made a startling recovery. If you consider the COVID-19 downtrend as a technical aberration, rather than a bear trend (which is our position), then this bull market is now almost 12 years old – an all-time record by some distance. The bears have been consummately beaten into submission.

Alan Greenspan’s 1987 innovation of pumping cash into the economy every time there was the possibility of a severe downward trend has established a pattern which now dictates economic policy. It has become politically impossible for the US Government (either Democrat or Republican) to countenance a recession. Every time one threatens, monetary policy stimulation supported by lavish quantitative easing (Q/E) becomes the order of the day. There can be little doubt that the new Biden administration will conform to what has become the unwritten economic policy norm.

This, of course, makes a huge bubble in shares not only possible, but virtual certainty. For many years now we have been predicting an unprecedented blow-off in equity prices based on the excessive printing of money in the world economy. As the bulls gain confidence, the bears retreat into obscurity and investors begin to believe that recessions and bear trends have been eliminated by new and ingenious economic policies.

The JSE Overall index, despite the parlous local economic conditions and the overwhelming second wave of the pandemic, has now also made a new record high:

JSE Overall Index: December 2016 - January 2021. Chart by ShareFriend Pro.

 

It has been well said that, for the next Kondratiev wave to occur, investors must first forget about Kondratiev. In 1987, after the crash, everyone was talking about the Kondratiev wave. Today, 33 years later, nobody even knows who Kondratiev was.


DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.



Share this article:

PDSNET ARTICLES

Distell

Quality of management is a vital indicator for the private investor. High quality management is the best guarantee of future profits and sustainability in any share, especially in the volatile and unpredictable environment of South Africa. COVID-19 and the recent civil unrest have given investors a unique opportunity to evaluate the quality of management

Opportunity Knocks

As a private investor, you need to develop a view on where exactly you think the market is in its cycle – is it expensive and close to the top, cheap and close to the bottom or somewhere in the middle? There can be very little doubt that investors generally move from being optimistic about the future to being pessimistic - and back again

Capitalising on Chaos

The most dangerous man is the one who has nothing to lose. He is not afraid of imprisonment because at least there he will have a roof over his head, food and clothing. For the past 12 years South Africa has been bringing much of its population to that point of desperation. Unemployment, the lack of service delivery and extreme poverty have become endemic.

At

Our Aveng Story

On 22nd October 2018 we ran an article entitled “Speculating on Aveng”, ( click here to read it ), in which we suggested that buying R10 000 worth of Aveng at 5c a share might be a worthwhile speculation for private investors. As we said in the article, we do not usually advise

The Confidential Report - July 2021

America

The US inflation rate rose to 5% in May 2021 – up from April’s 4,2% and March’s 2,6%. At the same time, there is evidence that employee costs (i.e. wages) are rising at the rate of 2,8% on average. Employees are also changing jobs more rapidly with the “quit rate” rising to 2,7%. This shows that employees are moving

More Fundamentals

In last week’s article we suggested that it was important to understand where a company was in its financial cycle and to download its most recent financial results in PDF format. Since then, one of South Africa’s best and most iconic companies, Hudaco, has published its interim financial results for the six months to 31st May 2021 (

Fundamental Context

The assessment of shares is divided into fundamental analysis and technical analysis. The fundamentalist is trying to answer this question, “How good will this company be as a payer of dividends in the future ?” This requires an in-depth study of everything about the company starting with its most recent financials.

Market Action

In general, we encourage investors to take a medium to long-term view of the market and not to get involved in “trading” or intra-day buying and selling, especially in highly geared derivative instruments.

However, watching the intra-day progress of the S&P500 index and other indicators

Market Update

The S&P500 has virtually completed its seventh “mini-correction” on Friday the 4th of June 2021, since the V-bottom of the pandemic in March 2020. It exceeded its previous all-time high closing level of 4232.6, reaching an intra-day high of 4233.45. That it would probably go to a new record high was indicated by its record intra-day high

The Confidential Report - June 2021

America

In the previous Confidential Report on 5th May 2021, when the S&P500 index was at 4167, we suggested that it was probably due for a correction. Over the last month we have watched as a correction unfolded in that index. However, it turned out to be only a mini-correction of just 4% - and as we pointed out in our article,