• 27th April 2020 - By adventuresofgreg

    Record unemployment numbers and the market goes up. Rising COVID19 death rates and community spread showing up around the world and the market goes up. For the first time in history oil prices dip into negative territory, and the market goes up. Earning projections as we go into earnings season are pessimistic at best, and the market goes up. Unemployment levels are at record highs and the market goes up. Uncertainty over some economies reopening too quickly, and the market goes up.

    It doesn’t make any sense. After the market drops -38% from all-time highs in February in just over 1 month, we have now rallied back to within a mere 17% of those all-time highs (last week). The last time the market was at this level was just over a year ago in Jan, 2019 where we were at full employment, corporate earnings expectations were high, and the economy was in fantastic shape. This is nothing like 2019. This is the mirror opposite of 2019. 

    This reminds me of early 2000 when the Nasdaq index had doubled in value just in just over 1 year based on ridiculous valuations of new Internet companies. When the bubble burst in March 2000, over a 3 month period the Nasdaq index dropped -39%, then rallied back to within 15% of it’s highs. Sound familiar? By October, 2002 the index had reached it’s lowest price, dropping a total of -78% from it’s all time highs.

    Nasdaq stock index in 2000 dropped -78%. After the initial -39% drop it rallied back to within 15% of the all time high. Look familiar?

    So why is the stock market acting like it is? I don’t know. It seems like a bubble, and one important driver of a bubble is FOMO. Investors fear that they have missed, or are missing a rare opportunity to buy equities at bargain prices, after a sizable decline. Right now, a -17% discount on all-time high prices is no bargain in my opinion! -17% declines aren’t that rare.
    I don’t think we’ve seen the bottom yet, but what do I know? More importantly, what do I care? This is one huge advantage to using a trading algorithm to guide your trading decisions versus using emotionally charged discretion. AlgoLab investors are able to happily participate in this on-going stock market rally even though it may not ‘feel right’.

    Market participants are mostly driven by emotions, and the crowd tends to make the same emotional mistakes at the same time. As a systematic trader, we can take advantage of these situations and do the opposite, resulting in profits when the errors in judgement due to emotions are eventually corrected.

    DOW futures contract as of April 27. Repeat of the 2000 dot.com bubble?

    For more information on an investment with AlgoLab Capital Management, please visit https://www.algolabcapital.com/

    Past results are not necessarily indicative of future results.

  • One Response to “This is wrong, but we are long.”

    • Yan on June 23, 2020

      Hi Greg,

      Shawn (Abbott, your previous neighbor) referred your blog to me, and I am loving what I am reading! Amazing mind and fantastic adventures, so good to see bright souls like you!

      I am messaging to let you know I will be moving into the beautiful house you built in Springbank! Hah! I know! I am so excited! Love the corridor between the garage and the house:) and so much more! Love the uniqueness!

      where are you living now? Whenever you are in town again, feel free to stop by to visit your old home:) I would love to hear how did you move from working for an oil company, to build a graphic design company, then turned into financial market! That seems so unrelated! Maybe we will all go have a drink at Shawn’s den:)

      Have a wonderful day wherever you are! Just want to say hello and send good vibes:)


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