Buffet “Overvaluation” Index Never Higher

INVESTOR’S first read.com – Daily edge before the open
DJIA:28,390
S&P 500: 3,520
Nasdaq Comp.:11,890
Russell:1,660
Friday  November 6, 2020    8:48 a.m. (SENT: 10:55p.m. Thursday)
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NOTE: My apologies to my website readers. I was unable to publish Tuesday – Thursday –  I was in the hospital.
brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
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With the DJIA at 18,591on March 24, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617) – it went higher.
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of  today.   how far the rally extended.  On May 18, I began to warn of  Bubble #2
August 6, I headline “SELL” with DJIA at 27,201 (S&P 500:3,327). Another “Fed” bubble.
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     The stock market soared Wednesday and Thursday when it became clear there was not going to be a lopsided Democratic victory. The Street  was settling for political  gridlock for at least two years.
That aside, nothing has changed for the better either in the economy or with COVID.
 BOTTOM LINE:
      This rally is a gift for investors to sell down to a level that discounts their tolerance for loss.
Simply stated, the Buffet Indicator, a ratio of stock market’s total market value to the  GDP has soared to new all-time high of 181%, a level far exceeding any ever achieved, greater than  the year 2000’s  159%, greater than the high of 118 reached before the 2007-2009 Great Recession.
Our nation’s economy is struggling to climb out of a recession. It may technically do that briefly  as a result of its sharp rebound from severely depressed Q2 and Q3, but I suspect it will once again plunge as economic dominoes continue to tumble.
In its simplicity, this indicator is screaming-  Stop Buying – Sell.
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RECENT POSTS:
Monday November 3, 2020 (DJIA: 26,501) Party Over, Rally a Trap, Worst Yet to Come”
A Biden win means a lot of painful damage control.
A Trump win means more damage.
Either way, I see a worsening of the recession and another bear market.
At these lofty levels, the stock market does not even closely  reflect the damage done over the last four years.
The stock market is vastly overvalued based on time-tested measures of value and buoyed by government stimulus and a handful of gigantic corporations whose market caps have distorted the market averages and given a phony reading  of values.
It is overvalued, because Wall Street  likes it that way and wants the party to continue indefinitely.  Not Going to happen. Fed bubble #1 burst on February 12, Fed Bubble #2 burst on October 12.
       The Fed has no reason to prop the market after tomorrow. Congress has no incentive to pass any more stimulus packages.
Covid-19 is running wild in its third major surge of infections threatening to crush an economy already on the ropes.
       If the market were down 35% from here, I would be bullish as Hell. But that’s the disconnect, it is 10% down from all-time highs and has not discounted any negatives.
BOTTOM LINE:
Look for brief rally starting today after last week’s drubbing. New buying risky, especially chasing stocks at the open. It looks like the tech stock craze of invulnerability has been shattered, rallies from here  give investors a chance to lighten up.
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Market Averages:  Estimated for today only.
 Resistance:  DJIA: 27,001; SPX:3,329 ; COMP: 11,145;QQQ:274.5
Support: DJIA:26,400 ; S&P 500:3,260  ; Nasdaq:10,500 ; QQQ:271
Note: News of a failure to reach a bill would hammer stocks.
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The news sensitivity of this market complicates picking support and resistance levels –  Changes in broker ratings and earnings reports/projections add to the difficulty. Technical-only estimates of short-term price ranges  for today are listed below.
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Today’s est. range:
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FB:
     273 -263
AMZN: 3,107 – 3,045
AAPL: 111.8 – 109
NFLX: 486 – 475
GOOG: 1,666 – 1,625
TSLA:   411 – 390
MSFT: 2.7.6 – 202
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Again, These  are “technical chart reads.” I am not checking  earnings, news, buy/sell recommendations. These levels change frequently.
Some markets are easier to read than others. I like a rough and tumble market, that’s where the opportunities are albeit risks.  That’s where “wild bid” opportunities crop up, where a bid  set well below the market for a stock can be nailed for a turn that occurs in just a fleeting second.  These are usually not at conventional support levels, but a bit below those levels. If the stock doesn’t trip it, a trader looks for the next one.  The key is cut losses short. Sometimes partial positions work better than an “all-in” strategy, especially in a news whipsaw market where the market gets jerked around by conflicting news releases.
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Friday October 30, 2020 (DJIA:26,501)  “Flash Crash Risk Rises – Nov. Buy – Lower Prices”
A chaotic month, a flash crash, but a great buying opportunity at much lower prices.
According to the Stock Trader’s Almanac, November ranks first in months to buy  for good results over the next six months.
      Yesterday’s rebound was more about a technical reaction to the plunge over the last four days than to the stellar Q3  GDP report which has been expected for weeks.  While compared with a severely depressed Q2, an annualized gain of 33.1%, it was buoyed by unprecedented government stimulus, which cannot be expected in future quarters.
Uncertainty LOOMS, the VIX is surging to reflect angst ,and small wonder,
the next 10 weeks stand to be racked with chaos, inept governance, uncertainty about WHO IS IN CHARGE.
If Trump loses he will be vindictive and out of control,  and nothing can be done about it. If he wins, the nation will be thrown into a depression, stock market crash, civil unrest and the biggest challenge to the survival of our democratic representative constitutional republic since the CIVIL WAR.
BOTTOM LINE:
With COVID on a tear, odds strongly indicate that  the economy will tank again triggering another flash crash, this one featuring a series of plunges, rallies and plunges.   Initially, I see the market averages hitting the levels below before a short-lived rally.
DJIA: 25,000
S&P 500: 3,050
Nasdaq Comp.:10,150.     

Yesterday’s  “Trader’s Hit-n-Run Buy in early trading should have served readers well, but take the profit and wait for another opportunity..   Expect a test of those lows today.

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Market Averages:  Estimated for today only.
 Resistance:  DJIA: 26,450; SPX:3,285 ; COMP:11,150 ;QQQ:275
Support: DJIA:25,790 ; S&P 500:3,200 ; Nasdaq:10,290 ; QQQ:269
Note: News of a failure to reach a bill would hammer stocks.
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The news sensitivity of this market complicates picking support and resistance levels –  Changes in broker ratings and earnings reports/projections add to the difficulty. Technical-only estimates of short-term price ranges  for today are listed below.
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Today’s est. range:              30-Day Risk
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FB:  284 – 268

AMZN: 3,243 – 3,095
AAPL: 117 – 110
NFLX: 521 – 490
GOOG: 1,672 – 1,630
TSLA: 414 – 398
MSFT: 207 – 199
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Again, These  are “technical chart reads.” I am not checking  earnings, news, buy/sell recommendations. These levels change frequently.
Some markets are easier to read than others. I like a rough and tumble market, that’s where the opportunities are albeit risks.  That’s where “wild bid” opportunities crop up, where a bid  set well below the market for a stock can be nailed for a turn that occurs in just a fleeting second.  These are usually not at conventional support levels, but a bit below those levels. If the stock doesn’t trip it, a trader looks for the next one.  The key is cut losses short. Sometimes partial positions work better than an “all-in” strategy, especially in a news whipsaw market where the market gets jerked around by conflicting news releases.
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Thursday October 29, 2020 (DJIA: 26,520) Trader’s Hit-n-Run Buy – More Downside”
     A 22-month period of stock market hype is coming to an end. It featured hype by the Fed, the Administration and the Street to prop the stock market and economy up in time for this presidential election.
Over this period, I detailed this effort, which included Fed Bubble #1 (Jan. 2019- Feb 2020, and Fed Bubble  #2 (Mar.2020 to October 2020).   Both bubbles were burst with results injurious to investors.  The Administration and Street  are understandable, the Fed  Not !
I would not be surprised if these three amigos don’t try one more time to con investors into buying into an overvalued market, especially the Fed.
Very little of the stimulus would have happened to this degree if it weren’t a presidential election year.
The sharp rebound in Q3 GDP (33.1% ann. rate)  reported this morning is deceiving in that it reflects an unprecedented government stimulus, as well as a normal “bounce” in an economy that  was  severely depressed by COVID. Axios reports the economy must still regain 40% of the $1.85 trillion lost to get back to pre-COVID GDP levels.
Q3’s GDP is a quarter-to-quarter calculation at an annual rate comparing Q3 to a very depressed Q2.
BOTTOM LINE:
     If the Street adjusts  its buy-only algos, to account for risk, we are in a bear market, since most algos will be adjusted at the same time by most institutions.
Why not adjust them ?  A third spike in COVID threatens to trigger a second plunge in the economy, this time one without stimulus. Then too, there is no urgency by the three amigos to hype the economy and stock market.
Expect a number of rallies as the market seeks to find a level that discounts  known and perceived economic, political and market valuation levels.
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With the DJIA at 28,195, I headlined “Double Top Sets Up Big Crunch,”
referring to two double tops in the DJIA and S&P 500, Sept. 2 and Oct. 2 and in a broader sense, Feb. 12 and Sept. 3.  Yesterday’s decline sets that technical phenom.
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Market Averages:  Estimated for today.
 Resistance:  DJIA:26,857; SPX:3,315 ; COMP: 11.110;QQQ:273
Support: DJIA: 25,783; S&P 500:3,165; Nasdaq:10,695 ; QQQ:264
Note: News of a failure to reach a bill would hammer stocks.
………………………………………………………………………………….
The news sensitivity of this market complicates picking support and resistance levels –  Changes in broker ratings and earnings reports/projections add to the difficulty. Technical-only estimates of short-term price ranges  for today are listed below.
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Note: Uncertainty of the election results and especially a COVID-ravaged economy going forward raise the risk of more days like yesterday.  Traders can scalp a quick hit ‘n run after another downer. Today’s est. range:
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FB:
271 – 256
AMZN: 3,191 – 3,007
AAPL: 111.8 – 104.6
NFLX: 4887 – 471
GOOG: 1,526 – 1,471
TSLA: 407 – 371
MSFT: 204 – 196
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Again, These  are “technical chart reads.” I am not checking  earnings, news, buy/sell recommendations. These levels change frequently.
Some markets are easier to read than others. I like a rough and tumble market, that’s where the opportunities are albeit risks.  That’s where “wild bid” opportunities crop up, where a bid  set well below the market for a stock can be nailed for a turn that occurs in just a fleeting second.  These are usually not at conventional support levels, but a bit below those levels. If the stock doesn’t trip it, a trader looks for the next one.  The key is cut losses short. Sometimes partial positions work better than an “all-in” strategy, especially in a news whipsaw market where the market gets jerked around by conflicting news releases.
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Wednesday October 28, 2020 “Street Can’t Ignore COVID’s Surge Any Longer”
The Street cannot ignore this third surge in COVID-19 any longer.
Why ?  Because it has stymied the rebound in the economy.
A healthy rebound in Q3 GDP  (plus 3% ann. Rate) will be reported at 8:30 tomorrow, but that reflects unprecedented stimulus and a “bounce” from severely depressed Q2 levels.  Without further stimulus, we are headed back into an economic slump, a “W” not an “V.”
The double top I referred to a week ago is firmly in. Actually, two double tops have developed in the DJIA and S&P 500 between September 2 and October 2. A broader double top has formed between February 12 and September 3. There has not been a double top in the Nasdaq Comp..
To a great extent, this market has been propped by the Fed (Bubble #2) presidential election year BS by the Administration and big houses on the Street.  That will end abruptly on Tuesday November 3.
A major contributor to an extended bull market is the Street’s “buy only” algorithms.  If a changed economic outlook forces those algos to be changed for “risk,” we are headed for the second bear market of 2020.
So far, another stimulus before the election is unlikely, but it could head off a major sell-off.
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Market Averages:
 Resistance:  DJIA:27,405 ; SPX:3,386; COMP:11,420 ; QQQ:282
Support: DJIA:26,817; S&P 500:3,367; Nasdaq:11,395 ; QQQ:280.5
Note: News of a failure to reach a bill would hammer stocks.
………………………………………………………………………………….
The news sensitivity of this market complicates picking support and resistance levels –  Changes in broker ratings and earnings reports/projections add to the difficulty. Technical-only estimates of short-term price ranges  for today are listed below.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Note: Uncertainty of the election results and especially a COVID-ravaged economy going forward raise the risk of more days like yesterday.  New Buying risky – healthy cash reserve necessary.
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FB:
293 – 277
AMZN: 3,283 – 3,247
AAPL: 115.3  – 114.7
NFLX: 487 – 484.6
GOOG: 1,604 – 1,587

TSLA: 428 – 417
MSFT: 212 – 207
……………………………………………………………..
Again, These  are “technical chart reads.” I am not checking  earnings, news, buy/sell recommendations. These levels change frequently.
Some markets are easier to read than others. I like a rough and tumble market, that’s where the opportunities are albeit risks.  That’s where “wild bid” opportunities crop up, where a bid  set well below the market for a stock can be nailed for a turn that occurs in just a fleeting second.  These are usually not at conventional support levels, but a bit below those levels. If the stock doesn’t trip it, a trader looks for the next one.  The key is cut losses short. Sometimes partial positions work better than an “all-in” strategy, especially in a news whipsaw market where the market gets jerked around by conflicting news releases.
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Tuesday October 28, 2020 (DJIA: 27,544) “Can Street’s Algos Prevent a Big Plunge ?”

Yesterday’s plunge in prices may signal the Street’s nervousness about a potential Democrat sweep in the elections and the unknowns that would accompany it, about COVID’s surge and its consequences, or the fact another stimulus won’t happen before the elections, if ever.
I question if any stimulus, Fed or Congressional, would have happened if this weren’t a presidential election year.
Obviously, the buy-biased Street algos were there at the close to curb the damage of the plunge in prices.
While the tech stocks got hammered in early trading, they were quickly scooped up before the close.
Bottom Line:
Expect a 30%-plus Q3 GDP growth rate (ann. rate) to be reported at 8:30 a.m. Thursday up from a 31.4% plunge in Q2. That reflects a rebound from depressed levels caused by the initial impact of COVID.
While the economic rebound has been impressive, it was driven by Fed and Congressional stimulus, which won’t continue.
The key now is where does the economy go from here now that COVID is surging to new highs ?
If a second slump in GDP lies ahead, expect the stock market to begin declining in advance of the news.
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Market Averages:

Resistance:  DJIA: 27,817 ; SPX:3,421 ; COMP: 11,417; QQQ:282.7
Support: DJIA:27,198 ;  S&P 500:3,387; Nasdaq: 11,303; QQQ:279
Note: News of a failure to reach a bill would hammer stocks.
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I would like to try the following for the market averages and selected stocks.
The news sensitivity of this market complicates picking support and resistance levels –  Changes in broker ratings and earnings reports/projections add to the difficulty. Technical-only estimates of short-term price ranges  for today are listed below.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Note: Uncertainty of the election results and especially a COVID-ravaged economy going forward raise the risk of more days like yesterday.  New Buying risky – healthy cash reserve necessary.
……………………………………..
FB:
281 – 279
AMZN: 3,217 – 3,191
AAPL: 115.8 – 114
NFLX: 493 – 481
GOOG: 1,601 – 1,581

TSLA: 423 – 415
MSFT: 212 – 209
……………………………………………………………..
Again, These  are “technical chart reads.” I am not checking  earnings, news, buy/sell recommendations. These levels change frequently.
Some markets are easier to read than others. I like a rough and tumble market, that’s where the opportunities are albeit risks.  That’s where “wild bid” opportunities crop up, where a bid  set well below the market for a stock can be nailed for a turn that occurs in just a fleeting second.  These are usually not at conventional support levels, but a bit below those levels. If the stock doesn’t trip it, a trader looks for the next one.  The key is cut losses short. Sometimes partial positions work better than an “all-in” strategy, especially in a news whipsaw market where the market gets jerked around by conflicting news releases
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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