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Is the Dow recent gains sustainable? Is a correction due? Does anyone know?

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rufflesinc (Mar. 21, 2017 @ 7:23p) |

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Yes.

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Let me get out the eight ball.

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kriskos4 said:   Yes.
††
No!

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Perhaps I should have asked it a different way: who's massively selling and preparing for a drop?

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bubble but we're not near the top. just getting started imo.

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MDfive21 said:   bubble but we're not near the top. just getting started imo.
† should I wait for dow 22k? 25k?

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I'll start selling when my kids school bus driver starts talking about stocks.

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I think bubble. We're late into an eight or nine year stock market (and economic) recovery. Things don't move in a straight line forever.

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This is what i'm concerned about
It has taken eight years of glacial expansion, but the nation is closing in on what economists believe to be its full productive capacity. Itís nearing that level of activity in which nearly everybody who wants a job has one, and factories and offices are cranking at full speed.
...
Economic slack takes the form of empty warehouses and office parks; of machines that run eight hours a day when they were built to run for 12; and, most important, millions of Americans who might be coaxed to work in a booming economy but who arenít even looking for a job now.

If there is a lot of slack, then the Trump administrationís ambitious growth targets look more plausible, and the Fed should move slowly on raising interest rates so as not to choke off the expansion just as itís getting going. If thereís not very much ó if this is about the best the nation can expect to do ó then either the Fed will raise rates more quickly to choke off growth or inflation will burst higher, or both.

https://www.nytimes.com/2017/02/24/upshot/the-big-question-for-the-us-economy-how-much-room-is-there-to-grow.html

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It will go up and it will go down, regardless of it being a bubble or not.

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I'm getting worried. I expected a quick, sharp correction after the election...as did many so-called "experts," who were proven totally wrong. Taking capital gains is part of the reason I'm delaying liquidating some of the stocks/funds I own.† The current bullish sentiment notwithstanding, we're in dangerous territory now. But who knows: it could get even more dangerous.

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Just keeping buying VTSAX

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kriskos4 said:   Yes.
† 30000 by end of next week!

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puddonhead said:   I'll start selling when my kids school bus driver starts talking about stocks.
††This is how I've been looking at it. Are straight prices high? Yeah. But is anyone exuberantly and irresponsibly buying in? It still seems very calm.

We've got a ways to go.

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rufflesinc said:   Perhaps I should have asked it a different way: who's massively selling and preparing for a drop?
† From the looks of it, the vast majority are buying right now.

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jerosen said:   
kriskos4 said:   Yes.
††
No!

† Maybe

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Maybe it has noting to do, but just read an article recently that the robo investments firms and vanguard investors are just investing at a a rate not seen before, and we are just at the beginning of this transformation of how trades are made.

My guess is that the last eight years of capital infusion is finally materializing in rapid inflation.

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We'll see after feds meeting March 14-15.

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burgerwars said:   I think bubble. We're late into an eight or nine year stock market (and economic) recovery. Things don't move in a straight line forever.
† I thought that 18 months ago, moved some out of the market into cash. missed out on some earnings

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I'm sure we've all wondered the same. At this point, my worthless opinion is that crazy asset prices are due to the huge influx of currency into the system (ie, the economy is broken).†

This means crazy prices could very well be the new norm. If you look at art pieces, you'll see stupidly high prices. I assume this is because people have so much more money than they need so they might as well pay for something they want. The same could be said of stocks - people don't need or want to have large amounts of cash sitting around, so they put it somewhere.... somewhere in the mkt.

Anyway, it's worthless internet opinion, so take it for what it's worth.
~ryan

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The way to intelligently handle "bubbles" is to do an annual rebalancing.

Hypothetical portfolio: $100. Allocated 100% into stocks.
Assume rebalancing Target†is to have 75% stock instruments and 25% cash.

Year 1: Sell $25 stock, move to cash.
Year 2: Stock portion zooms to $150 (100% gain). Cash should now be $43.75. Well, sell some $18 worth of stocks now. Stocks $131.25, Cash $43.75
Year 3: Stock market crashes 50%. You are now at Stocks $65.66, Cash $43.75.
After Rebalancing, you should be at Stocks $82.06, Cash: $27.35 - Total = 109.41.

From year 1 through 3, the market did not go anywhere, just that a bubble formed and then popped. However, you locked in $9.41 in gains from the bubble gain with zero speculation AND following a systemic plan.

If you flipped the scenario around and modeled a situation where there was a crash and market recovery - with the market ending where it started, you'd still come out ahead. In a sense, rebalancing is your tool to lock in your gains when they happen - irrespective of the direction of the market, as long as the overall trend is not negative!!

Your gains would be more if the market trended upwards.

Cash is not necessarily the only option. You could lock in returns by paying down your mortgage, or some other creative ways to lock in gains.

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I'm looking for the little boy in the story "The Emperor's New Clothes" when it comes to President's Trumps actions vs real world.
Last week, I covered about 50% of my margin exposure. All those stocks continued to increase in price.
Yesterday, Fidelity lowered it's on line equity trading and made small adjustments in margin fees. The market had a couple of small dips. I now owe my margin account more than before and gained about 2% today. I sold a option today at a nice premium.

I guess you can say I drank the KoolAde yesterday.. Will the market correct? Certainly. When? for that answer, get out the pin the tail on the donkey kit with a blindfold.

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puddonhead said:   The way to intelligently handle "bubbles" is to do an annual rebalancing.

Hypothetical portfolio: $100. Allocated 100% into stocks.
Assume rebalancing Target†is to have 75% stock instruments and 25% cash.

Year 1: Sell $25 stock, move to cash.
Year 2: Stock portion zooms to $150 (100% gain). Cash should now be $43.75. Well, sell some $18 worth of stocks now. Stocks $131.25, Cash $43.75
Year 3: Stock market crashes 50%. You are now at Stocks $65.66, Cash $43.75.
After Rebalancing, you should be at Stocks $82.06, Cash: $27.35 - Total = 109.41.

From year 1 through 3, the market did not go anywhere, just that a bubble formed and then popped. However, you locked in $9.41 in gains from the bubble gain with zero speculation AND following a systemic plan.

If you flipped the scenario around and modeled a situation where there was a crash and market recovery - with the market ending where it started, you'd still come out ahead. In a sense, rebalancing is your tool to lock in your gains when they happen - irrespective of the direction of the market, as long as the overall trend is not negative!!

Your gains would be more if the market trended upwards.

Cash is not necessarily the only option. You could lock in returns by paying down your mortgage, or some other creative ways to lock in gains.

† IOW, "Buy Low; Sell High". But anyone who has been selling along the way these past couple of years has missed out on gains. Maybe if the market crashes enough they will be redeemed.†

Maybe we're just entering an inflationary period that causes the market to rise as well.†

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I took 2/3 out of the market. I'd rather miss out on last minute gains than live with the fear of what Cheeto in Chief is going to say next. I came unglued when he wanted to "audit the Federal Reserve". He shows no restraint at all in the things he says. FWIW, I'm within 2 years of retirement with a high tolerance for risk, but this just got ridiculous in the extreme IMO. The other 1/3 is loving the gains.

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samko said:   puddonhead said:   The way to intelligently handle "bubbles" is to do an annual rebalancing.

Hypothetical portfolio: $100. Allocated 100% into stocks.
Assume rebalancing Target†is to have 75% stock instruments and 25% cash.

Year 1: Sell $25 stock, move to cash.
Year 2: Stock portion zooms to $150 (100% gain). Cash should now be $43.75. Well, sell some $18 worth of stocks now. Stocks $131.25, Cash $43.75
Year 3: Stock market crashes 50%. You are now at Stocks $65.66, Cash $43.75.
After Rebalancing, you should be at Stocks $82.06, Cash: $27.35 - Total = 109.41.

From year 1 through 3, the market did not go anywhere, just that a bubble formed and then popped. However, you locked in $9.41 in gains from the bubble gain with zero speculation AND following a systemic plan.

If you flipped the scenario around and modeled a situation where there was a crash and market recovery - with the market ending where it started, you'd still come out ahead. In a sense, rebalancing is your tool to lock in your gains when they happen - irrespective of the direction of the market, as long as the overall trend is not negative!!

Your gains would be more if the market trended upwards.

Cash is not necessarily the only option. You could lock in returns by paying down your mortgage, or some other creative ways to lock in gains.

† IOW, "Buy Low; Sell High". But anyone who has been selling along the way these past couple of years has missed out on gains. Maybe if the market crashes enough they will be redeemed.†

Maybe we're just entering an inflationary period that causes the market to rise as well.†


Lots of 'maybe', references to phantom gains ..... i.e. extremely speculative line of thinking.

A systemic/algorithmic approach that can't be skewed by your emotions, and almost guarantees to slightly beat the market is worth a lot! It ceratainly is better than majority of fund managers!!

The only thing you need for the rebalancing strategy to beat s&p 500 is that inefficiencies exist in the market and are more during bubbles and busts!! That is almost guaranteed to be true in almost all market scenarios.

The more money moves to index funds - the more will inefficiencies increase in the market.

In trader-speak, you are capturing all of the alpha return and some of the positive beta return using this strategy!!

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busyryan said:   I'm sure we've all wondered the same. At this point, my worthless opinion is that crazy asset prices are due to the huge influx of currency into the system (ie, the economy is broken).†

This means crazy prices could very well be the new norm. If you look at art pieces, you'll see stupidly high prices. I assume this is because people have so much more money than they need so they might as well pay for something they want. The same could be said of stocks - people don't need or want to have large amounts of cash sitting around, so they put it somewhere.... somewhere in the mkt.

Anyway, it's worthless internet opinion, so take it for what it's worth.
~ryan

† Regarding art prices, I collect fine art. Have been for several years. Whereas the most renowned artists and the top old masters work is skyrocketing, prices for most everything else is in a deep depression, with no apparent end in sight anytime soon. For example: some of Picasso's original lithographs that routinely sold for $5,000-$10,000 fifteen or twenty years ago are, in many cases, now selling (when buyers materialize) for less than a grand. It's a fantastic time to be buying most art. If I could justify the purchase, I'd be looking to buy original Andy Warhol's right now, even though prices have appreciated quite a bit.

As for the stock market, I've lived through and traded lots of bull and bear cycles, and one thing that stands out very painfully is that market corrections are often absolutely breathtaking in their severity and speed, and for anyone who's been through a bad one, it can leave a lasting impression. In some cases it can take years for the market to come back. There's a lot of optimism now, but most people are still not investing in the stock market and don't know anything about it, while others who think they know something about it are convinced it's a crap shoot and no better than gambling. Under normal circumstances, I would seriously consider liquidating some, and perhaps a significant portion, of my equity holdings after this quick and dramatic a rise, but the whole world seems different now. The recent election shocked me, and without commenting on it further, I'll just say I never ever expected that Donald Trump would become President Trump. I remember thinking the odds were about the same as an alien life force visiting earth. Boy was I wrong.

I'm retired and my stock market portfolio makes up a significant portion of my net worth. Since the election I've been checking my portfolio several times a day...waiting for the shoe to drop. For those in the market already, in my opinion a prudent way to deal with the market's rise is to set stop loss orders on their holdings. I haven't gotten around to implementing this myself yet, but will get around to it soon, hopefully before I regret procrastinating. For those bemoaning the fact that they have no market exposure I suggest caution. Don't jump in with both feet. And if/when we see a significant correction, don't jump in right away. Wait for the market to stabilize a bit.

But when people you know who have never expressed the slightest interest in the stock market start advising others to buy buy buy, it's time to sell sell sell. We're not there yet, but it could come soon.

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We have a fairly stable economy on our hand. The correction will come IMO in a form of war or natural calamity. And Trump can turn the table any moment.

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ledwards said:   I'd rather miss out on last minute gains than live with the fear of what Cheeto in Chief is going to say next.
††Apparently the "markets" like everything he says...

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Guessing of course. 25,000 - 30,000 in the next ~3.5 years.

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100k (26.15kB)
Disclaimer
rufflesinc said:   † should I wait for dow 22k? 25k?

††

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Here is how I invest-

markets take escalators up, and elevators down. when the elevator drops, you build positions. when you set new highs you take profits. I like to do it percentage based, say 3% off the top w/ every new 5% market gain ~1000pts. That money I sideline, I restart building during >10% corrections. It takes a lot of discipline.

Couple this will drips, and 401k contributions, re-adding into more defensive sectors on the way up, and more aggresive sectors on the way down.
never be 100% allocated in stock, never be 100% cash, and never be diversified beyond your comprehension level.

I like bogleheads approach, but I pad it with some sector timing that I consider gambling but with some rationale and gut based fundamental and technical research.

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One look at the S&P 500 PE ratio (here) is enough to tell me that the market is currently insane, but it can stay as or even more insane for years before correcting. Earnings haven't moved in five years, inflation-adjusted sales have been flat for over a decade, dividend yields are near historic lows all suggest that there's no reason for the S&P 500 index to be where it's at. I'm guessing the same is true for DJI, which only contains 30 stocks.

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FWF is a pretty reliable contra-indicator. Based on this topic theres another 5k to the upside.

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puddonhead said:   I'll start selling when my kids school bus driver starts talking about stocks.
††
I thought we were supposed to wait for the shoe shine boys to talk about it.†

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BADADVICE said:   
rufflesinc said:   † should I wait for dow 22k? 25k?
††

†Haha, I actually own this book and have it on my book shelf in my office.

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rismoney said:   I pad it with some sector timing that I consider gambling
Fixed your post for you. †

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ledwards said:   I took 2/3 out of the market. I'd rather miss out on last minute gains than live with the fear of what Cheeto in Chief is going to say next. I came unglued when he wanted to "audit the Federal Reserve". He shows no restraint at all in the things he says. FWIW, I'm within 2 years of retirement with a high tolerance for risk, but this just got ridiculous in the extreme IMO. The other 1/3 is loving the gains.
† This is a smart move whether or not Cheeto in Chief is president. If you're two years from retirement and you have enough to retire, you've already "won the game"; no need to keep playing and risk losing half your net worth.

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Markets at all time high... check
Real estate overpriced... check
Unemployment rate bottoming out... check
Interest rates increasing... check
Retail sales at its peak... check

Question is who's going to pull the trigger first and who's going to be left holding the bag.

Skipping 30 Messages...
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Stocks Post Biggest Drop of Year as Trump Trade Stalls
Dow industrials, S&P 500 decline more than 1% for the first time since October as confidence in Trumpís agenda wavers

https://www.wsj.com/articles/buying-appetite-returns-to-global-m...

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