October 24, 2021
Weekly Market Outlook
By Keith Schneider
Two key equity benchmarks (SPY and DIA) made all-time highs.
The important question to answer is, what stage are we in… is it euphoric?
Classic market valuation metrics (Buffet style metrics) have been frothy for some time if you look at PE ratios, margin debt, and/or national debt versus GDP.
Liquidity is excessive (negative interest rates after accounting for inflation) is a major contributor to this speculative insanity.
Even more remarkable is the valuation of some new asset classes such as cryptocurrencies, art tokens, and even blank art canvases, which are selling for the price of a luxury car.
The overnight value of Trump's new SPAC shot up to almost 7 billion before closing at a mere 3.4-billion-dollar valuation after just 2 days of trading. This is based on a planned media company that currently has no product or even a mobile app.
Now on the flip side, and despite Trump's recent failures at several other media ventures, it is possible that the huge capital inflows, if appropriately used, could fund and turn the enterprise into a money-making venture.
If one looks at other meme stocks such as AMC and GME, huge capital inflows have allowed these companies to change their business models and potentially make some money in the future. Hence prices are still in bubbling mode.
So regardless of your political beliefs, this environment mandates one to adapt to rapidly shifting conditions.
Our belief is to always follow the technicals first because, by the time you figure out the logic, it is often too late.
Additionally, we advocate the use of risk controls so you can take advantage of what the markets offer while keeping your eye on the big picture.
Remember, Amazon, one of the great companies to arise from the internet bubble in the 90's suffered more than a 90% decline (drawdown) when the bubble broke in 2000, and it took a decade to regain those highs.
NFLX suffered an 86% decline before its rise to success.
FB, AAPL, GOOGL, and many other great companies have success stories of recovering from big drawdowns, but their success is an exception, not the rule.
It's critical to avoid such drawdowns without missing out on the success of great companies or markets.
We demonstrated how you can do this with mechanical trading models like our Nasdaq 100 All-Stars last week. You can see the replay of that demonstration here.
As always, this week's Market Outlook video is intended to help you become a better discretionary trader who can minimize drawdowns and take advantage of the market's opportunities.
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