A year ago when Dow was about 13000, I wrote that Dow will go to 20000 or beyond and today Dow is breaking to new high at 16100? Is the bubble in the making now? Certainly yes but it will grow bigger from here and pushes Dow to at least 23000-25000 by 2015/2016.
Meanwhile, I only expect a modest correction from this week (already extended in short term Cycle) and thereafter it will push higher till early January before the major correction sets in
Top 6 reasons why Stocks will go parabolic till 2015/2016 before the bubble pops. The following reasons are apparent to create ‘the mother of all bubbles’ but they are not sustainable
1. Mom and average investors have been whipsawed twice in the last decade. They've bought at the top and sold at the bottom like the times in 2000 dot-com stocks and stocks crushed in 2008 GFC.This year, so far SP500 has gained 30% but we are yet to see them coming back. Taxi drivers also have not started giving tips yet. In 2007, stock ownership hit the historical high at 65%. Currently, it is sitting around 50% according to Christian Monitor.
Markets don't top until all the inexperienced investors are in
2. This stock market rally is clearly responding to the quantitative easing i.e. printing money. As long as The Fed continues to print, the stock will continue to flex its muscles. The following chart showing Fed printing versus the Dow Jones Industrial Average:
3. Technology from Apple, Face book, Twitter etc are taking the world by storm, changing lives, and making early investors rich. Most investors start to say again: This time is different. You can read almost everywhere so called-guru is out to promote technology stocks to you with the remarks like:
I'll show you three stocks that have absolutely explosive upside potential and the ability to turn every $1 you invest into $5... $10... Even $15 or more.
In fact, one stock just soared from $10 to $500, handing savvy investors a whopping 5,000%. That's good enough to turn a $25,000 investment into $1.25 million.
4. Money flows into equities. Much money has come out of bonds (with low yields) in droves into equities. Interest rate is at all time low, which also encourage money to flow into stocks. Margin for stocks and derivatives are sitting on massive 400 trillion which is at all time high. Most investors also expect U.S.D to go up and that causes them to bring money in to invest in Dow and SP500
5. Expected earnings increases. Basically better earnings come from cost cutting and restructuring.
6. The current P.E. for SP500 is around 17-19 (depends who publish it) and normally market will only crash when it escalates to 25-30. So, there is still got plenty of room to move up.