Fleccy's question4 Mar 2020 22:02
Thank you Fleccy for posing the question:
". . . Velo, why do you suppose the market is taking off when the Corona virus headlines are ramping up, why is the market ignoring the risk? "
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It spurred me to look without bias at the US indices and was taken aback at what is in plain sight, and that is the markets are not 'ramping up' - they're attempting to stabilise at a lower level than was the all time highs achieved in mid February, which for the DOW was some 29,500.
I'm thinking that reversion to the mean, despite the virus epidemic is around 28,000 max (The S&P500 somewhat resembles the history 'shape' of the DOW).
Tonight closed over 1,1000 points up on the DOW (another record points day and 4.5% up) yet IMO it is not yet 'roaring' away.
( FTSE only 1.4% up)
The DOW responded to concerns over the virus by entering into a technically oversold condition on the 24th February, and dropped steeply, and technically, faultlessly in it's retrace (much like I was hoping BT's would) and commenced rising back out of oversold on Monday 2nd March, cleanly (but will it do a BT and double back? :)
Roughly 27,700 is midway in relative strength in the DOW so let's call it all - 28,000-ish for round figures.
The DOW after falling well beneath the 200 day ma has now 'reverted to the mean' by nestling just an arm's length away from that 200 day ma tonight of approx 27,240. That's not ramping up by any description - that's the long term average only.
So 28,000 is a nicely labelled maximum figure (27,000+ really) to allow space for it to stabilise - and yet it would still be lower than the mid February high of the DOW at 29,500.
The DOW to all intents and purposes panicked over the virus from the 24th February, and being the world's largest economy regained it's composure on Monday.
So today's 1,100 point 'ramp' is not that, IMO, but merely a balance to stabilise - which is 27,000-something, but for shorthand calling it 28,000 max to allow it to breathe.
It is still below the highs of mid February, so that's the extent of concerns over the virus epidemic.
However, I'm concerned about a mega worldwide stock market crash and don't think this is it.
WHEN - not if, the DOW reaches 33,000 that's the time for me to sell everything IMO.
Should the DOW climb back up to mid Feb's pre-virus retrace of 29,500, then I would start to be v concerned about it attempting the rise over 33,000's - and a crash. Eupohoria is the last sentiment investors experience before every major crash. You can not have fear, and deeply falling prices - weeks before a major worldwide 1929 style crash.
If I went into polite circles and talked of the DOW eventually climbing to 33,000 they would, as you can guess, lock me up as a mad man. But that's the warning shot - 33,000 - but when? This summer? Next year? If not by then, this has been a amateur's failed (but fun) attempt at interpreting the madness of crowds.
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