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Tuesday, June 13, 2017

Daily update 6/13 A Record Number Of Market Participants Says The Market Is Overvalued, Surpassing 1999 Bubble Highs

Pre FED day bullishness strikes again.

SPX made a new high close by 1 point.  It did not get above Friday's high though.  Breadth was a strong +62%.  New highs were a paltry 121 though.  The prior high close on 6/2 saw 331 new highs.  Quite a difference.  Volume was light compared to the last two days.  Not really a true thrust bar.

The futures were here once before.  Will they be able to stay there this time?  They are still inside the channel. 

The green count picked up today, but is barely above 50.  Pretty big negative divergence with the 6/2 high should the market turn back down.

QQQ was up today, but the volume dropped considerably.  Its not clear to me whether the selling is over or not. 

The VIX closed at 10.42 so once again it is already low.  Negative divergences abound as well.  Upside progress could be tough to come by.  What happens next really depends on whether tech sellers come back or not.  I don't know the answer to that.  Long big cap tech is a very crowded trade.  See the article below if you don't believe me.  The question is are those funds wanting to get out after Friday or looking to buy more.  For months nobody wanted to be the first to sell.  Now that somebody did sell everybody else has to decide whether to follow suit or hang on. 

Bob Pisani mentioned that the day before the FED meeting is usually up.  I have mentioned this in the blog many times over the years, but this is the first time I can recall hearing about it on TV.  That means it is now widely known.  Many years ago it was the FED day itself that always gapped up.  The FED came out with a paper showing the phenomenon.  Once everybody knew about it things changed.  It moved to the day before.  Now that affect has become widely known it may stop working down the road.

There were changes to the trend table yesterday (COMPX, sorry I forgot to look at it) and today (R2000).

Several interesting tidbits in this one.  A Record Number Of Market Participants Says The Market Is Overvalued, Surpassing 1999 Bubble Highs

Let me get this straight.  Everybody admits that 2000 was a bubble.  We now have more fund managers believing the market is overvalued then we had in 2000.  However, according to nearly everyone on Wall Street we are not in a bubble now.  Ok.  If you say so.

I wish the cash level chart went back to 1999.  We can't see what cash levels were in 1999 and 2000.  What can we learn from the data we have?  Clearly cash levels rise when stocks fall.  We can also see that since late 2013 and early 2014 cash levels have been on the high side.  Compare them to the 2003-07 time frame.  They are noticeably higher in recent years.  I have read articles screaming this is bullish for the U. S. market.  It certainly has been in the past.  Just keep in mind this is a global fund manager survey so they have other options then the U.S. for deploying the cash.  Now take a look at this next chart.

When comparing valuations by region 84% of investors think US is the most overvalued region.  It seems at least somewhat likely that some (maybe a lot) of that excess cash goes to some other markets rather then the U.S.  I guess we might be able to count on the other 16% of fund managers to put money to work here.

I believe one factor causing the higher then normal cash levels is the move from active to passive investing.  That move has been going on for years and matches up pretty well with the time that cash levels rose.  Active managers need the cash to meet redemptions from people moving their money to index funds.


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