Dividends Good?- Trading Journal (10.23.20)

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Looking long term holds that pays out dividend is an incentive to buy. The added liquidity is good for people who retire or who do not want money to be locked up for a long period of time. However recently the amount of dividends paid out has been on a down trend. Blame it on covid, recession, or not enough stimulus the reality is a lot of the consistent well paid dividend stocks in many sectors have cut or even stopped paying dividends.

Yet markets are reaching near record highs. The beta names, high growth, has capture a lot of attention and money. Many of these stocks that were in March at all time lows have double to even 10x its value. NIO is a prefect example, from low $3 to now close to $30. Then there is FSLY that although has recently dropped almost 50% it started the year in the teens and is currently above $70s. The point is a lot of stocks are still lifting the market up even though some old school way of thinking about investing has morphed.

Call options demand

Note in my last sentence I say "morphed" rather than "evolve" because I believe the current conditions of the market is temporary. Proof in point is there is head winds that has not been seen in generations. The lock downs, global recessions, infinite QE, or the current hype in call options buying.

The market fundamentals are not aligning with what prices are at but people still buy as the thought process either markets only go up or buy high to sell higher. Look no further than tech stocks one can understand the hype in investing at high growth names have been very hot. While value investing such as slow growth in dividends or stable value have been left in the dust. Therefore the risk appetite is large, but this can not be sustainable.

The losses in dividends is not helping value investing. On the short term there is more headwinds for value investing but for now the risk versus rewards favors going long value since the deviations between tech and value is at its highest ratings ever.

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The current earnings growth rates in SPX companies is clearly showing weakness in businesses, yet people are investing to looking ahead when every gets back to normal. Yet what if the economy does not get back to normal? What if there are other hurdles to slow down an economic recovery.

Although I am sounding an alarm the only thing that pays is price. So markets continue to rise even though the real economy is struggling. I am currently bullish on the SPY for the upcoming week right before the elections. The charts are proving that is the case and until proven otherwise.

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Positive divergence in the MACD while prices had made lower highs. Today's Friday's close SPY broke out of a bear flag. Time to see what next week will be in store from the bulls.

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