THE STOCK MARKET HASN’T BEEN THIS OVERBOUGHT SINCE 1983
17 September 2009 by Cullen Roche
8 Comments
Excellent data here from Bespoke. The market hasn’t been this overbought in over 25 years:
This additional chart from Quantifiable Edge shows the extreme level of stocks above their 200 day moving average. The stock market hasn’t been this oversold ever in terms of this indicator:
Source: Bespoke Invest, QE
Yes, 1983, right near the start of an enormous 17 year bull market.
There are many good reasons to be bearish right now. “Overbought” is not one of them.
“The market hasn’t been this overbought in over 25 years”
Are we missing the 86,87, and 97 ? Looks like not just 83?
This chart is absolute nonsense. The only reading that signalled a bear mkt was the Aug 2009 one. The others were indications of the intermediate term strength. Once again disappointed with Bespoke’s analysis.
1983 was the start of a bull market (and 3 years in a political bear market.) The economy was deflated (the debt to GNP ratio was low) unliked now.
“There are many good reasons to be bearish right now. “Overbought” is not one of them. ”
Actually, one reason to remain bullish, ironically, is that there is a lot of “good” reasons to be bearish and people position themselves because of those reasons. Most people know those reasons to be bearish. Actually, looking at the chart shows that the market didn’t decline when it became “overbought.”
The rally would end when the bears become very frustrated or when the crowds are optimistic (everytime the market rises, there are questions about the sustainability of the rally.) Right now, the bearish argument is supported by the frustration of the bears, but the latter part about the crowd being optimistic isn’t fulfilled. (Consensus economists are calling for a recovery though… but even the economist’s forecasts aren’t optimistic — the noun “recovery” is modified by the adjective “jobless.”) When the market started to fall in late August, early September, bearishness went up as the market went down. In order for a bear market to begin, people must remain bullish when the market starts to fall.
To throw a bone… if you actually want a REAL contrarian trade (short equities IS NOT CONTRARIAN), long the dollar, and perhaps long 10 year Treasuries (if interest rates rise back to 3.60-3.80). After all, there are so many “good” reasons to be bearish on the dollar such as fiscal deficits, a trade deficit, ZIRP, QE, etc. Who is actually bullish on the dollar? So many people are short dollars to fund investments in emerging markets, and deflation would increase demand for dollars to pay off dollar denominated debt. Also, manufacturing jobs are declining in China too (because of automation and the crisis), so they do have an incentive to keep the dollar strong and maintain the renminbi peg, despite the Chinese administration’s talk about the dollar. Of course, you do have to find reasons not only to long the dollar, but the short currencies against the dollar too.
Short gold might be contrarian in August, but it is possible because of reflexivity (i.e. the price affects the fundamentals) that $1,000 might be perceived to the new floor (instead of resistance) for gold.
http://www.bloomberg.com/apps/news?pid=20601057&sid=aisVOF6jluwc
This link references a Bloomberg article that has Birinyi using this exact data point to say the S&P is going to 1,700.00!!
Oink, oink.
The market can’t continue higher because that would mean that Jim Cramer and Dennis Kneale and company would have actually been right. I cannot accept this reality.
Even a broken clock….
People should stop trying to predict what this market may or may not do. The masses are not in control of the market, a set of individuals are. Those individuals have an ageneda that’s irrespective of any historical precedent or pattern fundamentally, statistically, technically. The only way to trade this market is to follow it. I can’t count the number of people I’ve read about that looked good simply going long, but then turned bearish, tried to call a top, and blew it.