What’s Wrong with the Present Market Recovery?

23 January 2019

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S&P recovered about 72% from the drop on 3 December or about 55% from the drop on 20 Sept when the peak was 2930. 

Shortest Recovery Time in History

The recovery this time  took 17 days  if we were to consider the 61.8% Fibonacci rise from the bottom as the level of  recovery. This would be the shortest recovery time in history.

Peak	Trough	Peak Price	Trough Price	% loss	Days to Recovery
7/09/29	13/11/29	31.92	17.66	-44.7	67
10/04/30	1/06/32	25.92	4.4	-83	783
7/09/32	27/02/33	9.31	5.53	-40.6	173
18/07/33	21/10/33	12.2	8.57	-29.8	95
6/02/34	14/03/35	11.82	8.06	-31.8	401
6/03/37	31/03/38	18.68	8.5	-54.5	390
9/11/38	8/04/39	13.79	10.18	-26.2	150
25/10/39	10/06/40	13.21	8.99	-31.9	229
9/11/40	28/04/42	11.4	7.47	-34.5	535
29/05/46	9/10/46	19.25	14.12	-26.6	133
15/06/48	13/06/49	17.06	13.55	-20.6	363
15/07/57	22/10/57	49.13	38.98	-20.7	99
12/12/61	26/06/62	72.64	52.32	-28	196
9/02/66	7/10/66	94.06	73.2	-22.2	240
29/11/68	26/05/70	108.37	69.29	-36.1	543
11/01/73	3/10/74	120.24	62.28	-48.2	630
28/11/80	12/08/82	140.52	102.42	-27.1	622
25/08/87	4/12/87	336.77	223.92	-33.5	101
24/03/00	9/10/02	1527.46	776.76	-49.1	929
9/10/07	9/03/09	1565.15	676.53	-56.8	517
20/09/18	24/12/18	2930	2351	-24.6	17

Many articles were skeptic about this recovery but none can tell us what are the  reasons and the causes behind this recovery.

In Feb last year after DOW made history by dropping 660 point and recovered the next few day,  many Analysts came out weeks later to say “ Most political has no impact to stock market” Or just simply giving a remark about “how quick we fall and how fast we will recover”

Why Market Can Recover So Fast?

The following are the likely reasons:-

a)  The US economy was great as Trump had claimed or

b)  The US economy will be soon recovered because the Corporate Earning are still good or

c)  The present recovery is manipulated or

d)  Other reasons  

Everyone knows that the Global economy is not as good as debts are piling up like no tomorrow.   People are living now with borrowed money and at the same time,  the household debts in many countries have risen higher and higher year by year.  

At the Corporate level,  things aren’t  looking any better.  Corporate earnings are getting worse than before as shown in the following pictures.   

Although the Corporates are better off after Trump introduced tax reform in 4Q17,  the effect appears to have worn out quickly after about one year.

 

Many Analysts said that the Corporate earnings are not necessary the important factor for  charting stock market direction. "Poor earnings may not stop a market rally", said JP Morgan.     They also argued that the stock market is not the economy and a strong economy can drive the stock market price lower than expected.  

A more pragmatic  Jim Creamer said that “Four things need to happen for the stock market to bottom and recover".   Unless there are resolutions in  “Federal Reserve, oil prices, the transportation industry and the trade war with China”.   the present market might not have fully recovered.

The Present Recovery is Manipulated

Our present stock market is not the same old market we used to see before year 2000.  The market has changed from a transparent, fair, and efficient manner to a non-transparent,  new  mode of market where a handful of  people, sitting behind the machines, can manipulate the market in which millions of dollars can just vanished in seconds. 

It was also said in 2016 that the Richest 10% of Americans Now Own 84% of All Stocks. Today,    this figure must  have risen to more than to 86%. 

The numbers of Adult Invested in Stock has dropped to 52% with stock trading volume much reduced but the price kept going up by almost 100%.  This illustrates clearly that the few traders left in the markets are playing against themselves,  pushing the price up with little or no trading activities.

The present stock market is almost sharing  the same true story about how the World's "Copper King,  Yasuo Hamanaka",  controlled the copper market in the 1990s.

What we should do next?

There is no way we can control or change how the big boys play the game.   The best way is to accept that manipulation is a part of market structure.

Fortunately,  stock manipulation affects more the day traders and those short term investors rather than the long term investor who holds stocks over long period of time.  At times,   it may even benefit long term investors as they can take opportunities to buy stocks at low and sell them at high.  

As the present market is suspected to be heavily manipulated by a few hands,  it is best to proceed  cautiously and not to assume the market has truly bottomed and recovered from its price correction.

Disclaimer:  This article is for information and  educational purposes.   Readers are advised to  conduct their own research and study to make their  own investment decisions.