Great employment numbers yesterday.
Did you buy before 8:30am ET yesterday? Good for you if you did. If not, consider holding off your index finger before you hit the "Buy" button.
Looking beyond NFPR headlines, now for the not so good part...
+2.509 million job increase in May vs -20.5 million job losses in April
(Abstract from Reuters below)
Part-time workers accounted for two-fifths of the increase in employment.
The Labor Department's Bureau of Labor Statistics, which compiles the employment report, also noted a continuing problem with misclassification by respondents. A large number of people misclassified themselves as being "employed but absent from work." Without this misclassification, the May unemployment rate would have been about 16%.
Government payrolls dropped by 585,000 in May, with the declines in state and local governments, whose budgets have been crushed in the fight against COVID-19. (abstract ends here)
Once the PPP money runs out, there could be another round of layoffs. But we shall see.
The bulls may argue that everything is in the rear view mirror. Everything will one day appear in the rear view mirror. But when? You sure it’s now? How does the recovery look like? You sure it’s V-shaped and not Y-shaped or W-shaped? Am I the only one bothered by the Covid-19 situation here?
Rather than asking who's buying this market, perhaps we should ask where on earth did this money that is used to excessively bid up the market come from? Individual investors? Yes, sure there are. I have little doubt that programs created by fund houses are using the clients’ money to participate in their “Fear of Losing Out (FOMO)” algo. Not to mention that we have just witnessed the greatest short squeeze of all time. I believe someday, FOMO algo could be forced to re-programmed to “Fear of Unable to Exit” algo simultaneously.
Back to fundamentals, look at the extreme valuation of some of the market leaders. Just an example on the heavy weight champion, Amazon. It closed at a P/E ratio of 118 on June 06, 2020. Bulls will argue that P/E is not everything. Of course it is not everything. For a company that recorded consistent losses or big one-off write down over the years, P/E won’t mean much. But for a company that is constantly growing or in the development of new drugs or products, a high P/E is certainly warranted. Just use Google Finance or something and you can see that after a massive explosion in earnings in the past few years, Amazon earnings has plateaued over the past few quarters. For sure Amazon dominates the e-commerce industry and cloud business. I am not saying that Amazon will not up further. No one knows how far overbought market will continue their stretch. I have never shorted Amazon, this is just an example. It is worth taking a look at the financials of other market leaders and their valuation. I am not trying to sound like I want people to hate me but I sat for the CFA level 3 exams a decade ago. I think I know what I am talking about when it comes to stock valuation and comparison. Having said that, market can be irrational at times. I just prefer calculated risk.
Back to charts, Nasdaq 100 closed at record high while economic activity is at record low. Bearish MACD divergence with RSI close to or exceeding 70 for all Major US Indices. Could this be the making of the greatest bearish “double top” or “head and shoulders” formation? If it materialize, market will have to visit March 2020 low and probably retest Dec 2018 level. I think there is a high possibility but I cannot say I know for sure. No one is right all the time. If chasing the trend is your strategy, by all means go for it. But many stocks are certainly very expensive from both a valuation point of view and from the charts.
I am new on tradingview.com but not new to the industry. If you like my articles, consider following me and sharing my ideas. Having worked on the sell-side for a such a long time and seen through the Lehman collapse, I hope to one day publish a book on the evil things that sell-side people in the financial industry do to the individual investors.
Did you buy before 8:30am ET yesterday? Good for you if you did. If not, consider holding off your index finger before you hit the "Buy" button.
Looking beyond NFPR headlines, now for the not so good part...
+2.509 million job increase in May vs -20.5 million job losses in April
(Abstract from Reuters below)
Part-time workers accounted for two-fifths of the increase in employment.
The Labor Department's Bureau of Labor Statistics, which compiles the employment report, also noted a continuing problem with misclassification by respondents. A large number of people misclassified themselves as being "employed but absent from work." Without this misclassification, the May unemployment rate would have been about 16%.
Government payrolls dropped by 585,000 in May, with the declines in state and local governments, whose budgets have been crushed in the fight against COVID-19. (abstract ends here)
Once the PPP money runs out, there could be another round of layoffs. But we shall see.
The bulls may argue that everything is in the rear view mirror. Everything will one day appear in the rear view mirror. But when? You sure it’s now? How does the recovery look like? You sure it’s V-shaped and not Y-shaped or W-shaped? Am I the only one bothered by the Covid-19 situation here?
Rather than asking who's buying this market, perhaps we should ask where on earth did this money that is used to excessively bid up the market come from? Individual investors? Yes, sure there are. I have little doubt that programs created by fund houses are using the clients’ money to participate in their “Fear of Losing Out (FOMO)” algo. Not to mention that we have just witnessed the greatest short squeeze of all time. I believe someday, FOMO algo could be forced to re-programmed to “Fear of Unable to Exit” algo simultaneously.
Back to fundamentals, look at the extreme valuation of some of the market leaders. Just an example on the heavy weight champion, Amazon. It closed at a P/E ratio of 118 on June 06, 2020. Bulls will argue that P/E is not everything. Of course it is not everything. For a company that recorded consistent losses or big one-off write down over the years, P/E won’t mean much. But for a company that is constantly growing or in the development of new drugs or products, a high P/E is certainly warranted. Just use Google Finance or something and you can see that after a massive explosion in earnings in the past few years, Amazon earnings has plateaued over the past few quarters. For sure Amazon dominates the e-commerce industry and cloud business. I am not saying that Amazon will not up further. No one knows how far overbought market will continue their stretch. I have never shorted Amazon, this is just an example. It is worth taking a look at the financials of other market leaders and their valuation. I am not trying to sound like I want people to hate me but I sat for the CFA level 3 exams a decade ago. I think I know what I am talking about when it comes to stock valuation and comparison. Having said that, market can be irrational at times. I just prefer calculated risk.
Back to charts, Nasdaq 100 closed at record high while economic activity is at record low. Bearish MACD divergence with RSI close to or exceeding 70 for all Major US Indices. Could this be the making of the greatest bearish “double top” or “head and shoulders” formation? If it materialize, market will have to visit March 2020 low and probably retest Dec 2018 level. I think there is a high possibility but I cannot say I know for sure. No one is right all the time. If chasing the trend is your strategy, by all means go for it. But many stocks are certainly very expensive from both a valuation point of view and from the charts.
I am new on tradingview.com but not new to the industry. If you like my articles, consider following me and sharing my ideas. Having worked on the sell-side for a such a long time and seen through the Lehman collapse, I hope to one day publish a book on the evil things that sell-side people in the financial industry do to the individual investors.