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Currently have 2 divergent views on the LT trend by EWI/Prechter and Neely.
Neely's last post recently is that the bull trend is still intact and expects sideways gyrations for the next 5yrs.
EWI/Prechter's assessment is the end of the wave from 1932 occurred in Jan 2020 as the count requirements are there.
It is relevant to note both have been wrong before but forecasting is difficult.
BOTH of them in substance concur with my remarks weeks ago that the US indexes wont get above the 2020 high by any significant sustained amount anytime in the next at least 5 years.
Neelys thinking appears to be based on pattern repetition and his view of DJIA 100,000 pts by 2050. The pattern he's basing it on which he has used before (succesfully) may not be relevant this time. He says the low is in.
(The main fault in his thinking is to not accept the fact that a mkt cannot go up forever without large corrections.)
EWI/Prechters thinking is more sound being based on what we see and what has happened before as we visually have a min requirement count in for 5 waves from the 1932 area.
EWI says the recent low is to soon and too small in price range to be the low of the EW impulse waves that has preceeded it. I agree.
I was thinking the other day WHAT IF something happens in the next years or so that causes the eco situation and investor sentiment to slide substantially ? Could we see a low around 1000 pts for DJIA (the old 1970s top level) as EWI as long estimated ?
Since long term tracking presents economically sizable uncertainty, it's probably practical to keep it myopic and call the ATM end of FIVE or just one of FIVE. https://4.bp.blogspot.com/-bBD7CaMKwbM/XqtyQeOQiTI/AAAAAAAAmEE/gbMJ3QanchEGPAMCbuV6UOy10qoHjOJ2gCLcBGAsYHQ/s1600/20200327-INDU-LT.png
Yes we should always plan for a normal move on these waves.
Your one of 5 on that chart is in substance one of Neely's wave 1 from some point.
But the fact is the DJIA has done an almost 5x multiple from 6600pts to 29000 pts in 11 yrs. Can it really do multiples far greater than that ?
Even Neelys count from 1949 low (where he says Supercycle wave 2 ended (wave 1 = 1835) has problems - firstly theres no proper & clear 5 waves up and abc down to 1966-1974. He doesnt explain properly what 1974-82 is. The run from 1982-2000 would be his either wave 3 or wave i of 3. Then 2000-09 would be his wave 4 or wave ii of 3. Then 2009+ would be either his wave 5 (but is it over?) or wave iii of 3.
What ever it is on Neelys count the Jan 2020 top is a point of main resistance and even if iii of 3 would require a sizable correction unless the main trend is so super strong it will be a flat flag. What are the odds it will be that strong given all the problems at the moment - particularly negative sentiment in EU Asia and US ?
A correction back to the 5000 pt level in DJIA would be more likely over the next 5 - 10yrs as worst case. Around the 2009 level.
In thinking about MTUs comment about eco issues a comparative measure that may be relevant is this. Compare US GDP to the DJIA in terms of rel change the past few decades.
Compare the DJIA move low in 1974 to 2020. Thats 574 pts to 29551 which is a multiple of 51.48 times gain.
Nominal GDP in 1974 was $1.54 Trillion to 2019 of around $21.42 trillion (real GDP is less of a gain of 5 to 19trillion) so that is a multiple of only 13.90 times gain.
DJIA gain of 51.48 GDP gain of 13.90
So DJIA technically on that basis is overvalued by 3.7 times.
That overvaluation will be even larger now given recent events over the eco CV-19 shutdown.
Given this, there is a fundamental basis for accepting the EWI/Prechter view wave 5 completion is possible.
To be equal to GDP growth since 1974 - DJIA would be valued at around 8000 pts.
Levered equities benefit more, which narrows the stock-GDP gap significantly (depending on the assumptions and the pricing model). However, over time, likely to see another reversion to the mean and overshoot (in the Shiller PE for example) over time. https://www.multpl.com/s-p-500-pe-ratio
Currently have 2 divergent views on the LT trend by EWI/Prechter and Neely.
ReplyDeleteNeely's last post recently is that the bull trend is still intact and expects sideways gyrations for the next 5yrs.
EWI/Prechter's assessment is the end of the wave from 1932 occurred in Jan 2020 as the count requirements are there.
It is relevant to note both have been wrong before but forecasting is difficult.
BOTH of them in substance concur with my remarks weeks ago that the US indexes wont get above the 2020 high by any significant sustained amount anytime in the next at least 5 years.
Neelys thinking appears to be based on pattern repetition and his view of DJIA 100,000 pts by 2050. The pattern he's basing it on which he has used before (succesfully) may not be relevant this time. He says the low is in.
(The main fault in his thinking is to not accept the fact that a mkt cannot go up forever without large corrections.)
EWI/Prechters thinking is more sound being based on what we see and what has happened before as we visually have a min requirement count in for 5 waves from the 1932 area.
EWI says the recent low is to soon and too small in price range to be the low of the EW impulse waves that has preceeded it. I agree.
I was thinking the other day WHAT IF something happens in the next years or so that causes the eco situation and investor sentiment to slide substantially ? Could we see a low around 1000 pts for DJIA (the old 1970s top level) as EWI as long estimated ?
Your thts MTU ?
Since long term tracking presents economically sizable uncertainty, it's probably practical to keep it myopic and call the ATM end of FIVE or just one of FIVE.
Deletehttps://4.bp.blogspot.com/-bBD7CaMKwbM/XqtyQeOQiTI/AAAAAAAAmEE/gbMJ3QanchEGPAMCbuV6UOy10qoHjOJ2gCLcBGAsYHQ/s1600/20200327-INDU-LT.png
Yes we should always plan for a normal move on these waves.
ReplyDeleteYour one of 5 on that chart is in substance one of Neely's wave 1 from some point.
But the fact is the DJIA has done an almost 5x multiple from 6600pts to 29000 pts in 11 yrs. Can it really do multiples far greater than that ?
Even Neelys count from 1949 low (where he says Supercycle wave 2 ended (wave 1 = 1835) has problems - firstly theres no proper & clear 5 waves up and abc down to 1966-1974. He doesnt explain properly what 1974-82 is. The run from 1982-2000 would be his either wave 3 or wave i of 3. Then 2000-09 would be his wave 4 or wave ii of 3. Then 2009+ would be either his wave 5 (but is it over?) or wave iii of 3.
What ever it is on Neelys count the Jan 2020 top is a point of main resistance and even if iii of 3 would require a sizable correction unless the main trend is so super strong it will be a flat flag. What are the odds it will be that strong given all the problems at the moment - particularly negative sentiment in EU Asia and US ?
A correction back to the 5000 pt level in DJIA would be more likely over the next 5 - 10yrs as worst case. Around the 2009 level.
In thinking about MTUs comment about eco issues a comparative measure that may be relevant is this. Compare US GDP to the DJIA in terms of rel change the past few decades.
ReplyDeleteCompare the DJIA move low in 1974 to 2020.
Thats 574 pts to 29551 which is a multiple of 51.48 times gain.
Nominal GDP in 1974 was $1.54 Trillion to 2019 of around $21.42 trillion (real GDP is less of a gain of 5 to 19trillion) so that is a multiple of only 13.90 times gain.
DJIA gain of 51.48
GDP gain of 13.90
So DJIA technically on that basis is overvalued by 3.7 times.
That overvaluation will be even larger now given recent events over the eco CV-19 shutdown.
Given this, there is a fundamental basis for accepting the EWI/Prechter view wave 5 completion is possible.
To be equal to GDP growth since 1974 - DJIA would be valued at around 8000 pts.
GDP Data I used is from here
ReplyDeletehttps://www.thebalance.com/us-gdp-by-year-3305543
Of course if we use Real GDP figures the overvaluation is much worse. Making the DJIA overvalution to GDP around 7.5 times.
Levered equities benefit more, which narrows the stock-GDP gap significantly (depending on the assumptions and the pricing model).
DeleteHowever, over time, likely to see another reversion to the mean and overshoot (in the Shiller PE for example) over time.
https://www.multpl.com/s-p-500-pe-ratio