A rising stock price does not (always and) necessarily reflect the great prospects of the stock people always associate with - i.e the notion that a great rising price chart must mean a great company. We have seen great rising price chart with many market darlings in the past - LNG ( went into administration), SAS (went into administration), BIG (fraud), GSW (class action and misrepresentation), ISX ( impending case), SYR (carbon graphite boom that never happened), BUD (misrepresenting and got away with it) and many more- all that gave the view that they were all going to be the next ASX200 stocks. All they had was cult following, instead great stocks tend to have moderate rising prices over time that demonstrated financial and business traction and their management are not into the "price rising game" and along the way rewarding themselves with handsome performance share bonuses that enrich them regardless of what the business does thereafter.
Similarly, a rising stock market does not validate all is well and good with present and future corporate earnings, even with market participants wanting to believe that markets look 1-2 years ahead (as if they know when the pandemic will end and how the economy would actually fare 1-2 years down).
Market participants ought not to be so fixated with PRICE than the underlying reason(s) and drivers that can sustain price growth and corporate fortunes. Leave that price fixation to the traders. And charts only tell you after the event - it can't tell you what POTUS or the virus is going to do next. So think again if a rising stock market is an indication of rising fundamentals - because at the end of the day, whether that is next week, next month, next quarter or next year, prices ultimately reflect corporate fundamentals. And do not get confused prices with indices- the FAANGM stocks account for almost a quarter of the S&P500 price action - the day they fall so goes the indices. But even as they remain high or even higher, indices can go higher but not necessarily the very stock you own.
The trouble is when the markets are on the rise, market participants would not even be thinking of high PE multiples and forward looking fundamental outlook (macro and company), they would be fixated at price action, Dow futures, momentum and press announcements and of course charts. But when markets are on the nose, they tend to turn their attention to what could go wrong- extreme valuation, risk outlook , those very things that we should be always be looking at both in good and bad times.
The ASX futures is now pointing below 5800 which would be a violation of its key support level. I have been warning readers to remain largely sidelined except for long term gold exposure (we had a good week for market participants to reduce exposure given the increasing volatility). Let's see if we get some BTD (buy the dip) mentality on Monday , we may see an overshoot IMO at the start because we want to be clever in being anticipatory of what the Dow's next move would be , which is lower leaning but again never to judge the next outcome based on preliminary Dow futures numbers, a next vaccine candidate may be next news engineered to bring positivism back to hold the 3000 level on the S&P500, this being the hallmark of a fake engineered market.
The big question many would like to know is whether the 3000 support can hold
If the US pension funds have not finished their re-calibration and continue selling into next week, I won't bet on it.
But why worry about the indices if you have got the right stock that will prosper into the years?
Unless it is overhyped, overvalued, in the wrong sector that would be adversely impacted by the pandemic and the depression or one that only pretends to be a good stock on the basis of a strong (and perhaps unwarranted) cult-like following.
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