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By Money and Markets, on November 24th, 2010 in
Opinion & Commentary
In forecasting stock market movements, I’ve developed a model consisting of many components and indicators. Here’s a brief overview of where four of my five basic categories stand now:
1. The fundamental valuation of the stock market is very high.
2. The macro-economic or business cycle threatens to turn down again.
3. Liquidity indicators for the G7 countries have deteriorated sufficiently during the past 12 months to rate them as a clear negative for the stock market.
4. The overall technical picture shows some signs of a possible stock market top. But all in all it’s more or less neutral.
Have a look at the S&P 500 in the top panel of the following chart.
Prices are back to where they were earlier this year …
This chart pattern leaves us with two distinct possibilities: Either the market is ready for a breakout to new cyclical highs, or we are looking at a double-top to be followed by the next major bear market move.
Since three of my forecasting model indicators are clearly bearish, with number four — the technical picture — neutral, the latter scenario is much more probable.
Next, I want to discuss the fifth category of my overall model: Investor sentiment.
Investor Sentiment
Extremely Bullish!
The second panel from the top in the above chart shows Investors Intelligence bullish advisory sentiment. As of last week the percentage of bullish stock market advisors surpassed the threshold of 55 percent. Readings above 55 percent have historically been a harbinger for a larger stock market correction or a major stock market top.
The two lower panels — bearish advisory sentiment and the ratio of bulls to bears — are giving the same message as Investors Intelligence.
What’s more, two weeks ago, when the S&P 500 briefly exceeded April’s high, the American Association of Individual Investors reported that 57 percent of private investors were bullish, a very lofty number. At the same time the 10-day average of the CBOE put/call ratio reached the lowest reading since the April high.
Plus mutual fund cash levels are at 3.5 percent — very close to their all time low of 3.4 percent.
This brings the question: With so many investors bullish or fully invested, who is left to do the heavy lifting for further stock market gains?
Oh, and one more thing: Corporate insiders are bucking this trend … they’re selling their stock like never before! This should get you wondering if they’re paying attention to something that the bulls choose to ignore.
Best wishes,
Claus Vogt
Money and Markets
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
Warning: Stock Market Sentiment Is Way Too Bullish!
In forecasting stock market movements, I’ve developed a model consisting of many components and indicators. Here’s a brief overview of where four of my five basic categories stand now:
1. The fundamental valuation of the stock market is very high.
2. The macro-economic or business cycle threatens to turn down again.
3. Liquidity indicators for the G7 countries have deteriorated sufficiently during the past 12 months to rate them as a clear negative for the stock market.
4. The overall technical picture shows some signs of a possible stock market top. But all in all it’s more or less neutral.
Have a look at the S&P 500 in the top panel of the following chart.
Prices are back to where they were earlier this year …
This chart pattern leaves us with two distinct possibilities: Either the market is ready for a breakout to new cyclical highs, or we are looking at a double-top to be followed by the next major bear market move.
Since three of my forecasting model indicators are clearly bearish, with number four — the technical picture — neutral, the latter scenario is much more probable.
Next, I want to discuss the fifth category of my overall model: Investor sentiment.
Investor Sentiment
Extremely Bullish!
The second panel from the top in the above chart shows Investors Intelligence bullish advisory sentiment. As of last week the percentage of bullish stock market advisors surpassed the threshold of 55 percent. Readings above 55 percent have historically been a harbinger for a larger stock market correction or a major stock market top.
The two lower panels — bearish advisory sentiment and the ratio of bulls to bears — are giving the same message as Investors Intelligence.
What’s more, two weeks ago, when the S&P 500 briefly exceeded April’s high, the American Association of Individual Investors reported that 57 percent of private investors were bullish, a very lofty number. At the same time the 10-day average of the CBOE put/call ratio reached the lowest reading since the April high.
Plus mutual fund cash levels are at 3.5 percent — very close to their all time low of 3.4 percent.
This brings the question: With so many investors bullish or fully invested, who is left to do the heavy lifting for further stock market gains?
Oh, and one more thing: Corporate insiders are bucking this trend … they’re selling their stock like never before! This should get you wondering if they’re paying attention to something that the bulls choose to ignore.
Best wishes,
Claus Vogt
Money and Markets
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.