I do think 2021 might be the year that the Dow Theory takes a bit of a break.
Mike Bailey, Research at FBB Capital Partners
The Dow Theory states that the Industrial and Transport index need to confirm one another by moving to new highs in a bull market. The Transports did that but for an odd reason. Avis Budget Group, the rent car company, is a Transport component. It has risen seven-fold this year. It has accounted for one-third of the total Transport gains this year. It accounts for half the Transport gains since the start of September. So does this outlier constitute a real confirmation? It is not as though we have a broad-based move up.
Last week, we noted the dominance of Tesla trading at a 347 price earnings ratio and comprising half of all options activity. Move over Mr. Musk, there is an even bigger bet being placed. Rivian is a wannabe maker of electric pick-up trucks. It is the biggest IPO since 2014. It has sold 156 vehicles mostly to its own employees. Third quarter revenue is one million dollars. But its IPO raised $12 billion. It has a market cap of $100 billion + (depending on the time you looked at the tape). This surpasses GM at $89 billion. But GM had $122B in revenue by selling 6.8 million vehicles last year. How can an upstart with near no sales be worth more than GM? Apparently investors see a government sponsored car company that Team Biden won’t allow to fail. That was not the case with Obama’s favorite — Solyndra. GM CEO Mary Barra is puzzled at the valuation. Yeah, me too.
This reminds of the valuations of dot.coms by March 2000 who also had near no earnings. Positive social mood does not remember the dot.com inversion. That took the NASD from 5,000 to 1,250 in couple of years. All we can do is remark on such excessive sentiment at the 233 year anniversary of the founding of the USA.
Crude oil measured by West Texas Intermediate hit bottom around $10 in May 2020. It has now completed the five waves up described by Ralph Nelson Elliott in the 1930s. And so resistance is encountered at $80+. Price has bounced between the high 70s and 85 since the late October high.
Natural gas futures have risen from $1.50 to over $6. It is also consolidating.
Russia is using its near monopoly of natural gas threatening to freeze the EU. Belarus migrants gather on the Polish border. The Belarus dictator Lukashenko openly threatens the EU with a gas shortage as a cold winter approaches.
Finally, having caused the rise in energy prices, Team Biden promises to fix the 31 year inflation high it has caused with over regulation and war on the energy industry. Please Joe, no more help from your team.
