Worrisome signs for the longest running bull market in history 8/19

There has not been much to write about for a long time.  The market went relentlessly higher.  However, the internals have been weak for months.

I have recently run across a few charts that are bad signs for this bull market.  This first one is about options.

The Blue line represents retail traders, the red line is the professionals.  For about the last 18 months the volume of retail traders has been higher than for the pros.  This has not happened since 2000.  We all know what happened after that.  This next chart really tells the story.

Households in this country have a record percent of total assets in stocks at 36.5%.  This is 4 percentage points higher than in 2000.  We have been conditioned since 2009 to only expect short duration sell offs.  However, at some point there will be a true bear market.  When that prolonged bear market hits it is going to hurt a lot of people.  

There is a well known statement that retail investors buy the least at the bottom and the most at the top.  I think the retail crowd was very busy in the first half of this year.  This next chart shows the ten largest first half global equity inflows.

The first half of this year saw inflows about 2.6x larger than the previous record set in 2017.  Setting a new record is one thing, but this year smashed (that might not even be a strong enough word) it.

The above data show us the retail crowd has plowed their money into stocks just as they did in 1999.  There is nobody left to buy.  There is nothing but incremental dollars going into stocks now.   The current margin debt is about 50% higher than it was in Jan. 2020.  That crash was bad enough.  Just imagine what could happen with so much more margin debt.  One last chart to look at is the bull pressure chart.

All three time frames are bearish, but what I really want you to notice is the long term lines in the bottom panel.  I noticed the red line was unusually high at the high a few days ago.  I took a look at the 20 years of data I have and was shocked.  Every other time the long term red line got this high SPX was either below the 200 DMA (most of the cases) or very near (only a couple of times).  It is unprecedented to be this high while SPX is this close to its all time high.  The charts above showed retail investors are buying like crazy.  The bull pressure chart says the institutions are selling to them as fast as they can.  The pros call them bag holders.  Somebody has to hold the stocks when they crash.  Do not be one of them.

Obviously, we will only know if the final high is in with hindsight.  However, it would seem possible it happened the other day.  In the short term a trip by SPX to the 200 DMA seems pretty certain unless it is different this time than the last 20 years.  This looks like a very good time to raise some cash and have a plan in case the selling gets out of hand.  I think a true, long lasting, bear market is very close at hand.

Have a great evening.

Bob

The market is looking heavy 3/24

In the last blog post I noted the market was acting poorly, but it could bounce.  It did and SPX made a new high, but internally the market appears to be getting weaker.

SPX closed below its 20 SMA today.  It only made a marginal new high on the last bounce.  It looks to me like it might want to test that last swing low which would take it down to the 100 EMA (white line).  The QQQ chart looks much weaker.

Usually QQQ tops after SPX, but as you can see it got nowhere near the high on the latest bounce.  This would seem to be a significant warning sign.  Check out IWM.

IWM also made a slight new high, but it is already below its 50 SMA.  

I noted a few times late last year there was very little selling pressure.  I figured people did not see an urgent need to take money off the table so they wanted to wait until this year.  When the new year came there still was very little selling pressure.  I did not mention this before, but that got me to wondering if they wanted to wait until after a year to get the lower capital gains tax rates.  That very could be and we just turned the corner on one year since the crash low.  There might be a little more selling pressure over the next few weeks.

May God bless you all with peace, good health, and happiness.

Bob

The market is acting poorly, but might bounce from here 3/5

Small cap stocks started the year on fire, but since 2/10 they have been struggling mightily.  In addition, most of the big tech names which have been leading the market for years are not acting very well.

SPX tested the lower channel line both yesterday and this morning before bouncing strongly.  Volume was strong today.  This looks like a good bounce setup providing there is follow through on Monday.  The VIX is acting very odd this year.  It has been over 30 twice already with only little pullbacks.  I don't know exactly what it means, but it is not quite normal.

The futures tested the 200 SMA pretty well the last two days.  This afternoon's bounce makes the chart look reasonably positive.

I believe some investors are selling overpriced stocks because of rising rates.  I also think other investors are busy buying the dip because the FED is printing money.  If rates continue to rise the market will probably continue to struggle.  On the plus side, the DC folks are talking about more stimulus.  Stimulus could help to keep a floor under the market for now.  We might be limited on the upside by interest rates and supported on the downside by fiscal stimulus.  Breaking the 1/29 SPX low (3694) would probably tip the scales to the bears.

The biggest risk to the market would be a pullback big enough to start another margin debt unwind.  We saw what happened last year when that happened.  As of Jan., the margin debt was about 42% higher than it was Jan. last year  Should it unwind again we could be in for a bigger drop than last year.  The trouble is unwinds are very unpredictable.  It will happen someday, but there is no telling when.

Have a great weekend,  May God bless you with peace, good health, and happiness.

Bob