Nasdaq Index Eerily follows 2007 Trend Line
Recently, I have grown extremely suspicious of the Market as it seems overvalued with P/E ratios way above healthy levels. I will listed the major areas within the fundamental areas of our economy that furthers my negative market sentiment.
1.) The ISM non-manufacturing PMI - This index has declined at a very similar rate as 2008 and sits currently at levels almost identical to December 2008 ~ 52.6
2.) Consumer Confidence currently sits at high levels and is starting a down trend
3.) Unemployment is sitting stagnant at historical lows ~ 3.7% -
4.) Tech IPO's prices are declining rapidly after opening, most recently, Peloton as well as Bankruptcy concerns for WeWorks after its failed IPO. This is mostly due to overvaluation and a signal of capital slowdown for investment
5.) The 10-Year Treasury Constant Maturity Minus 2-Year Treasury has recently inverted in August. This is a recession predictor with recessions following with a spike in the spread after it has inverted.
6.) We are liquidity problems in the Repo Market, this is due to the Federal Reserve reducing its balance sheet. This points to the issue that the Federal Reserve is trapped and may be forced to lower interest rates back to zero to restart QE.
7.) Auto Inventories are declining rapidly. In the past, people have been concerned about large inventories, but as long as there was enough sales in the future to sell the inventory, the excessive inventory is not a problem. The problem arises when inventory decreases rapidly, meaning that automobile manufactures are expecting slower sales and will look to production cuts. Which means... a decrease in the labor force and jobs.
8.) The Market is no longer driven by fundamentals, instead it is driven by speculation to the end of the trade war, and if the trade war ends stocks will "hopefully" reach new highs so we have justification of this historic bull run.
9.) Stock buybacks have decreased dramatically in the second quarter of 2019 which means there is less buyers of equities. Although, we do see buybacks picking up rapidly in the third quarter.
10.) Gold and silver have been extremely volatile and moved dramatically to the upside. This suggests that people have concerns about the economy and they are hedging with precious metals.
There are many other things that I can list, but I think these points are suitable.
Now, lets talk about the chart.
Two weeks ago I was curious to see whether or not trend lines during certain time periods acted in coordination with current stock levels. After drawing this, I noticed that the Nasdaq follows this trend line and makes major moves (in particular) after crossing compared to the other indexes. I set the beginning trend line on a weekly basis and have been changing it to a daily basis frequently to see if anything sticks out noticeably. Today, the weekly line closed almost perfectly above with the line barely touching the bottom of the candle. On a daily basis, it opened just underneath the trend, then closed slightly above.
What can we conclude?
1.)The Nasdaq and other major indexes are failing to hit new highs
2.) bearish patterns are emerging
3.) There is not a clear end to the trade war
4.) Economic Fundamentals are weaking
5.) Global concerns are not going away
I will let other people interpret this for themselves. For me, I am no longer holding any long term equities outside of safe havens until I see a major change in economic fundamentals nationally and globally.
Cheers,
AC
1.) The ISM non-manufacturing PMI - This index has declined at a very similar rate as 2008 and sits currently at levels almost identical to December 2008 ~ 52.6
2.) Consumer Confidence currently sits at high levels and is starting a down trend
3.) Unemployment is sitting stagnant at historical lows ~ 3.7% -
4.) Tech IPO's prices are declining rapidly after opening, most recently, Peloton as well as Bankruptcy concerns for WeWorks after its failed IPO. This is mostly due to overvaluation and a signal of capital slowdown for investment
5.) The 10-Year Treasury Constant Maturity Minus 2-Year Treasury has recently inverted in August. This is a recession predictor with recessions following with a spike in the spread after it has inverted.
6.) We are liquidity problems in the Repo Market, this is due to the Federal Reserve reducing its balance sheet. This points to the issue that the Federal Reserve is trapped and may be forced to lower interest rates back to zero to restart QE.
7.) Auto Inventories are declining rapidly. In the past, people have been concerned about large inventories, but as long as there was enough sales in the future to sell the inventory, the excessive inventory is not a problem. The problem arises when inventory decreases rapidly, meaning that automobile manufactures are expecting slower sales and will look to production cuts. Which means... a decrease in the labor force and jobs.
8.) The Market is no longer driven by fundamentals, instead it is driven by speculation to the end of the trade war, and if the trade war ends stocks will "hopefully" reach new highs so we have justification of this historic bull run.
9.) Stock buybacks have decreased dramatically in the second quarter of 2019 which means there is less buyers of equities. Although, we do see buybacks picking up rapidly in the third quarter.
10.) Gold and silver have been extremely volatile and moved dramatically to the upside. This suggests that people have concerns about the economy and they are hedging with precious metals.
There are many other things that I can list, but I think these points are suitable.
Now, lets talk about the chart.
Two weeks ago I was curious to see whether or not trend lines during certain time periods acted in coordination with current stock levels. After drawing this, I noticed that the Nasdaq follows this trend line and makes major moves (in particular) after crossing compared to the other indexes. I set the beginning trend line on a weekly basis and have been changing it to a daily basis frequently to see if anything sticks out noticeably. Today, the weekly line closed almost perfectly above with the line barely touching the bottom of the candle. On a daily basis, it opened just underneath the trend, then closed slightly above.
What can we conclude?
1.)The Nasdaq and other major indexes are failing to hit new highs
2.) bearish patterns are emerging
3.) There is not a clear end to the trade war
4.) Economic Fundamentals are weaking
5.) Global concerns are not going away
I will let other people interpret this for themselves. For me, I am no longer holding any long term equities outside of safe havens until I see a major change in economic fundamentals nationally and globally.
Cheers,
AC