Wednesday Recovery – Markets Bounce Right Back

Amazing! 

Nothing seems to stop this market for more than a moment.  We flew right back to the strong bounce line (see yesterday’s Report) at 4,292 and went all the way to 4,340 before pulling back to 4,322 this morning.  That is a very strong market and, as I said to our Members, the only caveat is that the volume is much lower (99M) on the way up than it has been on the way down (223M) in the past few days.  That means the recovery has, so far, left us weaker than we were when it started – with less actual dollars supporting the prices that failed to be supported before.  

That’s OK, though, stocks don’t actually need INVESTORS to go up in price.  Do you think people bought $500Bn worth of AAPL stock since June 1st?   Of course not!  AAPL trades an average of 84.5M $146.15 shares per day (and it was $122 at the start) so that’s $12.3Bn/day and 30 days would be $370Bn so EVEN IF EVERY SINGLE TRADE ON AAPL was just a buyer and not a single seller (not possible) – we’d still be 30% short of the money we need to account for the gain in valuation over the last 45 days.  

That is because the stock market is a very distorted pricing mechanism that values the entire company based on the last price paid for a share.  Clearly that is idiotic and my favorite example is this.

Let’s say you have a town with 100 potential drivers who make an average of $50,000 a year and can afford, generally, to buy a $25,000 car and they ALL want Beetles.  That’s good news for the VW dealer, who has 100 Beetles on his lot that he bought from the factory for $20,000 ($2M).  Unfortunately, they all have cars now so he has to wait for people to decide they want new ones.

  

So he sells 5 cars the first week at $25,000 and makes $5,000 per car, which is a $25,000 profit.  He can anticipate that his STOCK of Beetles is worth $25,000 per car

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Provided courtesy of Phil’s Stock World.