Irrational  Exuberance

Its the 10th anniversary of the financial crisis and Dr. Robert Schiller - a Nobel price winning Yale economist and a professor has written a book titled  "Irrational Exuberance".  This was the expression that  Mr. Alan Greenspan also used in 1996 and popularized the expression.  Both Dr. Schiller currently and Mr. Greenspan in 1996 claimed that the stock market was over valued.  The world market dropped by  4%  when Mr. Greenspan uttered this famous expression.  Stock market however went on to make further gains for the next 4 and a 1/2 years.  The stock market got valued even higher for the next several years until the dot com bubble burst in the year 2000.  CAPE ratio (price of stock divided by 10 year earnings average) currently is  33  and Dr. Schiller considers that to be too high.  He also does say that the  CAPE  ratio got up to  45  before the 2000 dot com bubble burst.

I tweeted (@spotlightamin) the video of the interview of  Dr. Schiller by Yahoo finance reporter Alexis Christoforous conducted on Friday Sept 14th.  In the interview  Dr. Schiller clarified that he is not predicting a recession or any kind of a market crash imminently.  He was very wise to have a disclaimer that economists are not good at predicting such things.  He did however say that most recessions are mild.  Stock market has been known to continue making further gains even when the market is considered overvalued by the academia.  Lesson learnt is:

  "Market really doesn't care about anyones opinions or feelings"   

Market  Outlook

As a retail trader and an investor, its best to look at the data and make a judgement based on that rather than acting on how you feel about the market or the stock that you are investing in.  The market is healthy and the primary trend is still strong.  We continue to make higher highs and higher lows.  That is what a healthy bull market looks like.  Economy is strong with only 3.8% unemployment rate.  Business optimism is high - just as it was in the President Reagans era.  Last quarter GDP(Gross domestic product) was at  +4%  and that's the highest it has been during this recovery period.

My analysis of the data indicates to me that we had a bullish market for 17 years from 1983 to 2000.  $NASDAQ  gained 976%  in those 17 years.  Looking over the weekly charts of the leading Growth Stock Index  $QQQ,  we had a bullish trend from March 2009 to 2014.  Year 2015 the market was digesting its gains and consolidating.  The new bull market began in Feb of 2016 and we are now  2.5  years in the new bullish trend.  This bull market could last  16.5  years like it did from 1983 to 2000 dot com bubble.  Markets don't just go straight up of course.  There will be corrections along the way and as retail investors, we just have to get defensive when the   "Distribution days"   gets elevated.  Currently we have 10  "Distribution Days"  between the  $SPY  and the  $NASDAQ.  That is a cause of concern.  4 of those days will however fall off in the coming week because they will be more than 25 days old.   

Mentoring  Program 

"What's dangerous is not to evolve"

By Jeff Bezos (Amazon founder and CEO)

From  2010  to  Aug 2018, $SPY(general market performance)  has performed  +171%  while  $QQQ(growth stock performance) has out performed to  +330%.  Growth stocks outperform the general market by a factor of 2 to 2.5 times.  In the last 12 months,  $QQQ  has performed  +26.40%

Is your portfolio lagging the leading Growth Stock Index $QQQ? 

Schedule a  FREE  30 minutes of  "Discovery Call"   with us and let us mentor you to profit in the market.  We have just a couple of spots left for the month of October.  Secure your spot now to profit in the coming quarter.  We are heading into traditionally the best quarter of the year.  Don't procrastinate and miss the boat to making a difference in your portfolio.

Happy Trading!

Amin