How Far Will The Market Fall?

[kid hustlr]

Yep great post thanks

The availability of these metrics for Aus is really difficult to come by.

Looking through a different lense:

Question to the forum - how many years until you think we will reach new highs in the All Ords?



Table above is crude but it get's the wheels turning.

The counter to this argument is the Hussman view which even though we have fallen drastically, historically on his model the S&P is no where near cheap

 

[gartley]

Question to the forum - how many years until you think we will reach new highs in the All Ords?

New highs, absolutely no idea.. The 19 year cycle low: early to mid 2022

 

[Smurf1976]

Not saying that Australia is cheap or US is expensive (see discussion here for that https://www.aussiestockforums.com/threads/market-bottoms.35299/#post-1062915 ) but only disagreeing with "much the same for Australia".

Agreed and it seems I got it rather wrong.

As an explanation of how, I simply looked at the chart for the US after following a link to it from an article, then thought OK I wonder how Australia compares. Checked what the total market cap of the ASX is, checked what our GDP is, came up with a similar number.

Upon further checking following your comments, it seems that the GDP figures I used were in fact stated in USD not AUD. I just assumed AUD given it's Australian data, but nope it's in USD it seems.

That was the source of my error. My apologies and I'll check the currency next time......

That aside though, I do have a basic line of thought which says that if the US still has further to fall then regardless of any fundamentals or technicals of the Australian market, further falls in the US probably aren't going to give Australian investors much confidence locally given current circumstances outside the markets are global in nature.

 

[InsvestoBoy]

That aside though, I do have a basic line of thought which says that if the US still has further to fall then regardless of any fundamentals or technicals of the Australian market, further falls in the US probably aren't going to give Australian investors much confidence locally given current circumstances outside the markets are global in nature.

Yep but there are two things here:

1. Short term movements as global indices move together, see the #14 post of this thread: https://www.aussiestockforums.com/threads/how-far-will-the-market-fall.35253/#post-1060455

2. Drawdowns and long term movements might not be the same because of different valuations. Take a look at this chart of NYSE listed SPY (S&P500 ETF in blue) vs EWA (MSCI Australia ETF in black), just using these two so they're priced in the same currency (USD) and avoid confusion that I often see here comparing US index to ours in different currencies.



Our market (in USD) peaked in early 99 and bottomed in mid 01. The drawdown was something like 35%.

US market didn't peak until mid 00 and didn't bottom until mid 02. The drawdown was something like 50%.

The point being that #1, yes short term markets move together and if the US is overvalued it will be a weight on our own index. But also, #2 those valuations (along with sector composition) do matter over the cycle and influence drawdown and long term movement.

 

[qldfrog]

There is still room to fall:
the way I see that we have an average PE currently of around 14/15 which are based on an optimistic dividend figure based on previous activity.So even if by miracle stimulus, cure we can keep these figures, we are basically priced on long term reasonable average PE (11 to 14 based on how you average etc)
So we are best fairly priced, not in the bargain area yet and this is based on an optimistic view with a lot of risk involved so yes, tentatively, selected entries but I expect more falls ahead, we are not yet at the bottom

 

[InsvestoBoy]

There is still room to fall:
the way I see that we have an average PE currently of around 14/15 which are based on an optimistic dividend figure based on previous activity.So even if by miracle stimulus, cure we can keep these figures, we are basically priced on long term reasonable average PE (11 to 14 based on how you average etc)
So we are best fairly priced, not in the bargain area yet and this is based on an optimistic view with a lot of risk involved so yes, tentatively, selected entries but I expect more falls ahead, we are not yet at the bottom

There is no rule which says we have to fall to fair value, just like there is no rule to say we can't exceed fair value (by a lot) or fall far below it.

 

[finicky]

The AORD took ~ 16 months to bottom in the GFC, only been falling 2 months so far this time. Much sharper fall so I am expecting down to 3,000 AORD at least (where it bottomed last time). Infections far from peaking and social isolating practices have plenty more room to tighten.

 

[qldfrog]

There is no rule which says we have to fall to fair value, just like there is no rule to say we can't exceed fair value (by a lot) or fall far below it.

I agree but many people here talk about fundamentals...and fundamentals deals with fair value;
Not fair value in the mind of buying but based on long term average, etc

as a system trader, I rarely buy at fair value, my systems follow the lemmings and try not to jump off the cliff pushing overinflated prices higher quite often
But if investing long term aka 5y or more, I would look at this fair value PE component;
If the PE was at 6 or 8 taking into account expected lower dividends then being in bargain territory, I would be happy to buy .Not the case yet
But we agree this will not mean we can not jump 20PC next month

 

[zaxacel1975]

There is still room to fall:
the way I see that we have an average PE currently of around 14/15 which are based on an optimistic dividend figure based on previous activity.So even if by miracle stimulus, cure we can keep these figures, we are basically priced on long term reasonable average PE (11 to 14 based on how you average etc)
So we are best fairly priced, not in the bargain area yet and this is based on an optimistic view with a lot of risk involved so yes, tentatively, selected entries but I expect more falls ahead, we are not yet at the bottom

Does your analysis adjust for the historically low interest rates and high liquidity being pumped into the system, which has been going for quite a while now? Since the GFC anyway.
Not saying you are not correct, but this has found its way into growth markets (shares), and not sure it will be any different on the other side of this current situation.

 

[qldfrog]

Does your analysis adjust for the historically low interest rates and high liquidity being pumped into the system, which has been going for quite a while now? Since the GFC anyway.
Not saying you are not correct, but this has found its way into growth markets (shares), and not sure it will be any different on the other side of this current situation.

Each time people say, it is different this time, i run
it is true with worthless money..a company, any is worth an unlimited amount of these pesos
But p/e stays relevant as: if a company is not able to make great profit in a low or neg interest rate period, is it really worth much,?

 

[zaxacel1975]

Each time people say, it is different this time, i run
it is true with worthless money..a company, any is worth an unlimited amount of these pesos
But p/e stays relevant as: if a company is not able to make great profit in a low or neg interest rate period, is it really worth much,?

no need to run, I think we are talking about slightly different things.
Price reflects the value people place on future earnings, and the risk they are willing to take based on their thoughts on the sustainability of those earnings or confidence in the companies ability to grow them.
I also think it is fair to acknowledge that people will take on more risk, and pay a higher price for future earnings when the alternative is holding cash and the return is almost 0.

I am not sure of the context of your comment around ‘different this time’. I am more referring to the run up before this crash, and what I think will happen after it when people get a better feeling for what future earnings will look like, rather than talking about the actual crash itself.
Of course if everyone loses their job and has no cash then it doesn’t really matter how cheap shares get from a PE point of view, they could just continue to fall.
Also the PE will tell us if shares are cheap or not, after we get through this, because I am not sure if anyone has a real good idea on what the actual impact on earnings will be from all this, or the long term impact on society, risk tolerance etc.

 

[qldfrog]

In overall agreement, "this time" meaning the QEs done and the flooding of fake money by the federal banks the world over
I use the term fake as in fiat currency,, not counterfeit
Unlimited printing....
This period of unlimited low interest worse negative interest is an aberration waiting to collapse.

 

[zaxacel1975]

I am not clever enough to know the what or how this QE thing plays out, but it does look like a house of cards.
When the GFC sparked a massive increase in debt on govt and reserve bank balance sheets I thought it might have been salvageable by a good old bout of high inflation, so the debt at least became manageable. Now I just don’t know how it all unwinds.

I thought the US was planning a 1.2 trillion rescue package, then I heard it was 2 trillion. Tonight the news said 3 trillion. Now I don’t know if this is an undeclared adjustment to local currency, or the news guy just got it wrong, but it seems a lazy 1 or 2 trillion is just considered rounding these days.

Strange times we find ourselves in.

 

[aus_trader]

Strange times indeed.

All is well, the patient is still alive. Another dose of Fed injection has worked to get it back up

 

[So_Cynical]

At some point reasonably soon we will see the first day of no new cases (Aust) and then soon after the first week, how
soon after will the panic button be reset? the pressure to get back to normal will be enormous...the rally will be on.

Late April or early May?

 

[frugal.rock]

All is well, the patient is still alive. Another dose of Fed injection has worked to get it back up

The patient has just had a shot of adrenalin and the paddles applied...
Nothing changes the fact that the patient is terminally ill...

 

[Smurf1976]

Strange times indeed.

All is well, the patient is still alive. Another dose of Fed injection has worked to get it back up

I was just pondering whether this is the start of the much anticipated bounce?

The market has stopped falling despite the bad news outside.

Note that I'm thinking of a bounce possibly starting here, there's going to be one sometime surely, not a major bottom at this point.

 

[aus_trader]

I was just pondering whether this is the start of the much anticipated bounce?

The market has stopped falling despite the bad news outside.

Note that I'm thinking of a bounce possibly starting here, there's going to be one sometime surely, not a major bottom at this point.

Yes, maybe not the absolute bottom yet, but a short-term bounce is on the cards I think.
Trillions are injected, even a dead cat would bounce with a dose like that !

 

[InsvestoBoy]

Using the co-ordinates of the peak=>trough and high of todays retracement (7202, 5350, 6037) as inputs to a Fibonacci extension gets you 4582 as the 0.786 extension and 4185 as the 1.0 extension.

A bit hard to see because I had to zoom the chart quite a bit out to show the extensions while the coordinates are all within a short timeframe.

View attachment 101189

Not that I am necessarily agreeing with the forecast, just showing some lines and numbers. Think of them as potential stopping points of the C move in an A-B-C pattern where the A and B moves have completed.

Who knew at the time that 7202, 5350, 6037 would actually be the valid swing?

Anyway, looks like 4895, the 0.618 extension was tapped and closed for the bounce:
View attachment 101334

Who knows whether we'll hit the 0.786 or 1.0 extensions?

Well, this is fun:


The chart looks like a mess but these are massive moves. The latest bar is up 10% off the 0.786 extension...

 

[qldfrog]

At some point reasonably soon we will see the first day of no new cases (Aust) and then soon after the first week, how
soon after will the panic button be reset? the pressure to get back to normal will be enormous...the rally will be on.

Late April or early May?

Match our graph with Italy, when italy peak, so will we with the fixed delay
May would be optimistic in my opinion