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How Far Will The Market Fall?

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OmegaTrader said:
Do you have any more stats,charts or info on this?
Click to expand...
My initial research was on Advance/Decline ratios on the major Indices which suggested that the wider market participation in the US stocks was lacking:







So it is already visually possible to gauge that NASDAQ tech stocks are showing and uptick in the A/D line with the rally while the S&P and Dow are showing a flat line. So it's already kind of obvious it was the tech stocks leading the rally and I just wanted to see which ones ?

I couldn't see a quick way to do it such as with a scan or some other means. By going through the lot I could see it was mainly the tech related stocks that were rallying especially the FAANG and other popular big caps. I didn't make any other notes or worked out stats, as flicking through them all was cumbersome enough. Just to gauge what the broader market was doing, most stock prices looked depressed, below are a couple of examples of what I saw:





Doesn't look like much of a recovery on those stocks, which was kind of typical of the bulk of stocks.

Here's Aussie 200 for comparison, showing there is some wider market participation in the rally, not just a few stocks rallying to lift the index:

 
aus_trader said:
but the whole back breaking task of flicking through 5000 to 6000 odd companies and ending up with a massive headache.
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dude! Let me save your back and your head for future scans.

Here's the monthly ratio of SPY (S&P500 market cap weight) to RSP (S&P500 equal weight), total return, log scale, going back to 2000.


You can see the phenomena of narrowing breadth has been going on since 2015. The biggest move at the end of the chart is March.

This is a much easier way to visualise the kind of breadth you're trying to capture.

Here's SPY to the IWB (Russell 1000)


SPY to VTI (Vanguard Total US Market)

 
So do you think this is a typical 50% sucker rally Austrader? I think you are one of the good thinkers.

I am usually pretty good at this stuff but it really is weird, funny money flowing all over the US with the President fighting the States. I mean the US Treasury is buying junk bonds!

I am still thinking 2 mill dead in the USA but that doesn't seem to matter. Trump is causing instability deliberately to help it spread.

Money printing everywhere, will we get high inflation despite no GDP activity? I really have no idea and like Garpal Gumnut besides buying a few shares (MSB,PNV, SPL, BFG) when it really dropped low, am just staying out. Have heard rumours the USA treasury will next start buying stocks directly. The USA is seriously acting weird at the moment. So glad to be Australian. Got a feeling if I caught the virus it will kill me.

Drinking some rum and cokes so maybe sounding a bit you know.
 
What is the take away from this?
Does this breadth keep increasing?
or do the leaders/broader market revert?


What is the play/ what does it tell you?

thanks
 

Thanks Knobby, unless the big4 banks also join the rally, it is unlikely to run to the pre-Covid19 levels any time any time soon. However it is also a reflection of markets working itself out to arrive at true price discovery. The fact that Australian government didn't jump on the Virgin Airline bailout shows that they are not going to bail out every private or public company that fails. So there is some integrity in the way ASX works.

You are spot on about the FED and the US markets. The FED move towards buying everything under the sun is likely to seriously distort the markets, which is probably what is happening now. The freshly printed is going to prop up the major Index stocks like FAANG's through the big investment banks rather than ending up with consumers and unemployed citizens in dire straits. If they are going to prop up and bail out all the zombie companies that a free market would make extinct through natural selection, I lose all faith in that system. Leadership and competition will come to a halt and companies will run so inefficiently like all the government organizations knowing they can do all the wrong things in the world and whenever there is to be any consequences all they have to do is to put their hand up to get bailed out from the FED. It'll be like begging of a nation at the highest level not the poor at street level. Could bring the end of FIAT a lot sooner for a complete system re-boot. It's the only way when the core is corrupted.
 
Last edited:
OmegaTrader said:
What is the take away from this?
Does this breadth keep increasing?
or do the leaders/broader market revert?


What is the play/ what does it tell you?

thanks
Click to expand...
Some thoughts come to mind with regards to the markets led by the big cap stocks. Firstly it's the big money managers, Fundies and investment banks that are likely buying and it's either because they sold early in the panic and buying back (or short covering) or they are buying the most liquid stocks that can be let go easily if there is another panic.
 
Westpac 4th May and Nab 7th May, will give some indication of where all this is going.
Just my opinion.
Im still only buying shares, in companies that arent relying on consumer spending.
Just my
 
My take is what is happening in the US is that the largest stocks are better placed to ride out the type of economic shock that is happening eg MSFT, AMZN. The market is saying that these types of companies and going to recover pretty quickly. The Russell 2000 however is getting hammered for the opposite reason.
 
This is what I observed also.

Also there is quite a possibility that a lot of smaller cash-strapped companies will go under unfortunately. Probably the reason why there is very little buying in these companies from the facts of my own research despite the possible talk of FED bail outs for all.

Not sure what'll happen but I'll be happy to watch from the sidelines. I think it'll be safe to watch if the talk of widespread bailouts materialises or just bluff. If it isn't bluff, then investing would have to be done with a new way of thinking. Things could get really messy and ugly if there is a FIAT reset or emerge of a replacement instrument. It's something I actually ignored up to this point (even after those bank bailouts in GFC) as an outlier that wouldn't happen in my lifetime

Will still have a nibble at ASX stocks selectively.
Knobby22 said:
So glad to be Australian.
Click to expand...
Amen
 
We have been talking about how all the stimulus from the GFC would be unwound, the massive asset price increases has caused a huge problem and had to be addressed sooner or later. Whether this incident presents the opportunity, time will tell, but if it doesn't cause the FIAT reset or replacement instrument it will certainly lay down the roots IMO.
We just need to notice the indicators, as this will be the start of a new growth phase IMO.
Changing the way we do business, opens the door for some sectors and closes the door on others, being able to see which is which is the trick.
Just my opinion.
 
We begin the fall, the long often slow grinding, sometimes rapid with minor corrections fall, before the calm.

gg
 
Check out this analysis on the current economic situation in Australia and consider how our economy is being affected by COVID 19

China’s GDP collapse caps off a week of bad Australian economic news
By
Robin Bromby
-
April 18, 2020
China’s economy contracted 6.8% in the March quarter.
FacebookTwitterLinkedInEmailPrint
China has been reporting quarterly GDP figures for 28 years and there has never been a contraction — until the March quarter just ended and the contraction came in at 6.8% on Friday.

That sent a shock wave around the world. It ended a surge of Chinese economic growth that dates back to 1976.

It will be an especially hard jolt to Australia with its heavy reliance on China as an export market.

Even before the Chinese data was released on Friday, Australian Prime Minister Scott Morrison earlier in the day was warning Australians that the economic impact of the COVID-19 virus will hit this economy “like a truck”.
https://smallcaps.com.au/china-gdp-collapse-bad-australian-economic-news/
 

Spot on sptrawler, opportunity has presented itself to flush the system of mal-investments and let nature take it's course on poorly run zombie companies that are not productive. That way there is going to be a new economy that'll adapt to the current environment and therefore thrive and grow.

This wouldn't happen when tax payer money (current and many generations into the future) end up paying for bailing out companies that have been run poorly. It's not happening in our nation yet, but this is something we all need to be aware of, because we have a habit of following others and fall into complacency. This is a time to lead not follow.
 

With figures like that, we have much less reasons to be optimistic about.

There are reports that point to high Iron Ore price that will save us. I am not so sure if Iron Ore will stay high if China is contracting...
 
aus_trader said:
With figures like that, we have much less reasons to be optimistic about.

There are reports that point to high Iron Ore price that will save us. I am not so sure if Iron Ore will stay high if China is contracting...
Click to expand...

I doubt it would "save" us, given mining (excl oil/gas) only contributes 6% to GDP and that contribution includes coal, gold, copper, etc not just iron.

That said, China contracting => AUD down => Iron ore priced in AUD up, or at least flat, is possible.
 
aus_trader said:
With figures like that, we have much less reasons to be optimistic about.

There are reports that point to high Iron Ore price that will save us. I am not so sure if Iron Ore will stay high if China is contracting...
Click to expand...
From a personal perspective, I'm struggling to work out where the demand for iron ore is going to come from, post the virus. My gut feeling is that there will be a lot of surplus capacity in the commercial property space, especially as a lot of firms will have slimmed down and others adapted to working on line.
The same will probably apply to retail, those who survive online, will probably vacate a lot of their lease exposure.
It will take a long time if ever, for people to re adjust back to the lifestyle before, maybe consumption wont return to the previous level for some time.
I'm wondering if the push to electrification isn't going to increase markedly, the car industry has been in the doldrums for a couple of years, it seems like a good time to start a concerted effort to encourage the change in some way. How that encouragement manifests will be interesting to see.
I guess it is just hard to see where the growth is going to come from ATM.
 
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