Barron's predicted this back in 2017, assuming the Trump tax cuts would boost Corporate Earnings and all went well with China Trade and nothing bad happened – Barron's saw the possibility of the Dow hitting 30,000 by 2025. While that's all very nice, I will point out that it's only 2020 yet here we are already – the very definition of getting WAY ahead of ourselves.
What's even more interesting is that we're doing it with 10% unemployment and a virus ravaging our economy and GDP down about 10% for the year – this is some truly insane market action – we're not taking reality into account at all….
Historically, the average Price/Earnings Ratio for the Dow Jones is about 16 times earnings. Currently the P/E Ratio for the Dow Components is 39.45 and I'm being generous because BA, CVX, DIS and DOW are losing money and I'm only counting their P/Es as 100 and not infinity.
Clearly we expect those 100s to turn around but its will be a long, hard road to get back to normal as these vaccines won't be ready until spring in large quantities and that means Q1 will be bad and probably Q2 of 2021 as well, so how are these companies going to bounce back?
Of course, the answer to that is stimulus, Stimulus and MORE STIMULUS but we already have that and that means that even these Price/EARNINGS ratios are fake, Fake, FAKE!!!
Reality check people, 12.6M people are unemployed, 10M more than usual and the workforce is 160M people so 6.25% less people than usual are getting paychecks – how are you going to have a robust economy when that is happening?
That is no way takes into account how many middle-class business owners are suffering or how many waiters, nail salon workers, hairdressers, salespeople, etc may be working – but are making far less money than they usually do. The "technically employed" crowd is large enough that we all know people who fall into that category – yes they are working, but they are struggling financially, nonetheless.
Oil, for example, is at $42.50 this morning and that's just ridiculous. We were at $35 to start the month so up 20% in 10 days is spectacular, but also FAKE!!! Did 20% more people start driving since November 1st? Did 20% more planes leap into the sky? We tested $43 overnight and that's a no-brainer to short but if the $42.50 line fails, we can short /CL with tight stop above that line and then go again at $43 or again if it goes below $42.50.
The Oil Inventory Report is delayed until tomorrow due to Veteran's Day. The API Report last night showed a 5Mb draw and oil popped 5% from $41 to $43 – that's ridiculous. The short has a great risk/reward profile as our 5% Rule™ would play off $37.50 (long-term support) and that makes $41.25 the 10% line and $43.125 is the 15% line, which is where we were just rejected. That's a $5.62 run so we expect 20% retraces and call that $1 back from $43 to $42 (weak) and $41 (strong) so those are the lines we'll be watching today, in our Live Member Chat Room.
Happy Veteran's Day!