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Stocks & Equities

Stock Valuation and Occam’s Razor

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Posted by Dash of Insight

on Thursday, 27 April 2017 07:28

occams-razor-4-728The use of this principle is valuable, but not completely determinative in science.  It often has an important application in investing.

Let us consider two hypotheses.

  1. A method of valuing markets that relies upon backward-looking data, looks at replacement value, or depends upon some other fixed ratio. Put another way, all the most popular valuation metrics.
  2. A method that considers prospective earnings, expected inflation, and interest rates.

Method one has been wrong for many years.  In fact, it has been mostly incorrect for decades.  Method two has been on the right side of market moves, but still shows significant deviations.  What can we learn from Occam’s Razor?

Method One

Since this method has been mostly wrong, many explanations have been offered.  I think I left a few out, but you get the drift.

  1. Speculation
  2. Not recognizing “fundamental” risks – Euro collapse, China collapse, recession, Brexit, etc.
  3. Depending upon dubious earnings estimates
  4. Market is about to crash
  5. Method not good for market timing, but returns will be poor for the next 5, 7, 10, 12, ? years
  6. Fed intervention – money printing and pumping up the market via QE
  7. Plunge protection team
  8. European Central Banks
  9. Suckers’ Rally
  10. Myopia of the investment world – no efficient markets
  11. High Frequency Traders and Algorithms

Method Two

Since this method has been mostly right, little explanation is needed.  The expected increase in market prices and multiples is consistent with the theory.  It should continue for another 8-10% and further if forward earnings increase.

Question

Should investors accept the complex and ever-changing explanations for method one?  Or perhaps should they consider that the method itself is flawed?

....also from Dash of Insight:

Weighing the Week Ahead: Time to Rebuild the Wall of Worry?



Stocks & Equities

Trader: Trump Tax Plan Likely To Send S&P To New Record Highs "No Matter What He Says"

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Posted by Zerohedge

on Wednesday, 26 April 2017 07:24

hqdefaultHaving extensively previewed the various known and unknown aspects of Trump's tax plan yesterday, set to be announced shortly, the reality - at least according to Bloomberg's Mark Cudmore - is that no matter what Trump says today, it will almost certainly lead to more stock buying, leading to yet another "Trump Bump." Which is ironic for one main reason: "Trump’s tax plan is expected to promise great things, but it’ll mean little without approval from Congress. So the consensus is that it’s unlikely to impact too much either way beyond some short-term volatility." Furthermore, and counterintuitively, it would be a "positive surprise if the plan isn’t overly ambitious and doesn’t promise too much. That would make fiscal stimulus suddenly seem more achievable and realistic."

However, Cudmore says that is an unlikely outcome: "One of the few inarguable facets of Trump is he knows how to get attention and viewers. Trump’s tax proposal is likely to be dramatic with some bold statements."

...continue reading HERE

 

also from ZeroHedge: French Establishment Mount The Ramparts Against Le Pen



Stocks & Equities

Marc Faber: Outlook for China & India better than the US, Europe Markets in 2017

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Posted by Marc Faber - Gloom Boom & Doom ReportDoom Report

on Tuesday, 25 April 2017 13:33

“India has done very well in 2017 and is grossly outperforming the US. Even if India grows at only 5%, it is still better than the US, Europe”. Citing a PwC report he said, India would be the second largest economy by 2050. “Outlook for the Chinese, Indian economy for emerging markets, in general, is far superior to the outlook in our rotten western democracies,” 

...related:

Marc Faber Expert Opinion Relating to Markets, Gold and Economy

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Stocks & Equities

Stock Trading Alert: New Rally Or More Medium-Term Fluctuations?

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Posted by Paul Rejczak - Sunshine Profits

on Monday, 24 April 2017 06:44

Sent to subscribers on April 24, 2017, 6:57 AM.

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,410, and profit target at 2,200, S&P 500 index).

Our intraday outlook is bearish, and our short-term outlook is bearish. Our medium-term outlook remains neutral, following S&P 500 index breakout above last year's all-time high:

Intraday outlook (next 24 hours): bearish
Short-term outlook (next 1-2 weeks): bearish
Medium-term outlook (next 1-3 months): neutral
Long-term outlook (next year): neutral

The main U.S. stock market indexes were mixed between -0.3% and 0.0% on Friday, extending their short-term consolidation, as investors awaited quarterly corporate earnings, economic data releases, French presidential election outcome, among others. The S&P 500 index remained within its week-long consolidation along the level of 2,350, around 2% below the March 1 all-time high of 2,400.98. The Dow Jones Industrial Average closed below the level of 20,600 again, and relatively stronger technology Nasdaq Composite index remained above 5,900 mark, as it continued to trade close to its early April record high. The nearest important level of support of the S&P 500 index is now at around 2,350, marked by previous resistance level. The next support level is at 2,320-2,330, marked by previous short-term consolidation. The support level is also at around 2,270-2,280. On the other hand, the nearest important level of resistance is at 2,365-2,370, marked by some previous local highs. The next resistance level is at 2,380-2,400, marked by record high, among others. We can see some short-term volatility following five-month-long rally off last year's November low at around 2,100. Is this a topping pattern before medium-term downward reversal? The uptrend accelerated on March 1 and it looked like a blow-off top pattern accompanied by some buying frenzy. The S&P 500 index is trading below its medium-term upward trend line, as we can see on the daily chart:

1 mtiX8mL

Expectations before the opening of today's trading session are very positive, with index futures currently up 1.0-1.2%. The European stock markets have gained 1.8-4.5% so far. Investors will now wait for more quarterly corporate earnings releases. The S&P 500 futures contract trades within an intraday uptrend following an overnight gap-up opening. The nearest important level of support is at around 2,365, marked by local low. The next support level is at 2,350-2,355, marked by recent consolidation. On the other hand, the nearest important level of resistance is at around 2,375, marked by recent local high. The next resistance level remains at 2,380-2,400, marked by March topping consolidation, and an all-time high slightly above 2,400 mark. Will the market break above almost two-month long consolidation? Or is this just another upward correction? We can see some medium-term negative technical divergences, but will they lead to a downward correction?



Read more...

Stocks & Equities

Chart of the Day - No Such Thing as a Quadruple Top

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Posted by Gary Savage - Smartmoneytracker

on Friday, 21 April 2017 07:08

When a resistance zone gets tested multiple times it usually breaks. It shouldn’t be long before the Nasdaq breaks through this resistance. After it does it will pull the rest of the market up with it.

cotd-176

https://blog.smartmoneytrackerpremium.com/

...related:

What Just Took Place In Stocks Has Rarely Happened In The Past 117 Years



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