Winter Is Coming. Is It Time For “Value” To Shine? 08-28-20

Winter is coming Value Shine Real investment Advice | James Alexander Michie

In this issue of “Winter Is Coming Is It Time For Value To Shine?”

  • Market Is At Technical Extremes
  • More Signs Of Exuberance
  • Is There A Rotation To Value Coming.
  • Winter Is Coming
  • MacroView: March Was A Correction
  • Sector & Market Analysis
  • 401k Plan Manager

Bulls Breakout To New Highs

A couple of weeks ago, I wrote a wildly unpopular article laying out why, if the bulls could push the markets to new all-time highs, the next target would be 3750. With the market now at new all-time highs, and the bulls clearly in charge, is it “safe” for investors to become complacent? Maybe, not.

Technical analysis works well when there are defined “knowns” such as a previous top (resistance) or bottom (support) from which to build analysis. However, when markets break out to new highs, it pretty much becomes a “wild @$$ guess” or “WAG.”

However, we did previously attempt to establish some reasonable targets based on relative “risk/reward ranges,”

“With the markets closing just at all-time highs, we can only guess where the next market peak will be. Therefore, to gauge risk and reward ranges, we have set targets at 3500, 3750, and 4000 or 4.4%, 12.2%, and 19.5%, respectively.”

“Given there is no good measure to justify upside potential from a breakout to new highs, you can personally go through a lot of mental exercises. While there is certainly a potential the market could rally 19.9% to 4000, it is also just as reasonable the market could decline 22.2% test the March closing lows.

Just in case you think that can’t happen, just remember no one was expecting a 35% decline in March, either.”

We then delved into establishing a target using the well-established trendlines from the 2009 lows. Given these trendlines have held for over a decade, we can only reasonably assume they will hold in the future. Therefore, since the upper bullish trend line coincides with the February 2020 market peak and the polynomial trend line, 3750 is the next reasonable target.

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Source: Lance Roberts | Real Investment Advice

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