Looming 'Overboughtness' in the Markets

Even though markets have been making new highs recently, it has been pretty difficult to eke out returns because it would really take a great amount of courage to take a meaningful position at this point. [click to enlarge images]

The percentage of stocks above their 200 and 50 day moving averages is currently above overbought levels and I don't know how long this will be sustained. The only supporting bullet to this up-move is that there is a huge amount of cash mountain that has yet to be deployed.

The cash is so huge that prices are literally running away from fundamentals. With the huge debt that the US has, it will be difficult for fundamentals to catch up to justify rapidly rising prices.

The last chart shows us that technically, because the S&P 500 level has been significantly above its 38.2% Fibonacci point, chances are higher that this will proceed to the next point level which is the 50.0 Fibonacci point. That next level we are looking at is at 1121.4. That is just 30 points away from the current S&P 500 level.

Comments

[bartpr:]

the middle class has lost $10 trillion in wealth in the 2007-2008 crash.
job losses are high and homes values are down. the financial health of the middle class will have to be rebuilt before any big investments in stocks are forthcoming. noe one really knows when this money will return and how much will come.

Oct 19 07:36 AM

[Mad Hedge F...:]

ijn When everything is working, and my portfolio is firing on all 12 cylinders, I pinch myself and ask “Is this real? What can go wrong?” I’m reminded of the slave whose task it was to remind conquering Roman generals “All glory is fleeting.” Virtually all of my recommended core longs in gold, silver, Canadian, New Zealand, and Australian dollars, Brazil, Russia, India, South Korea, Taiwan, Vietnam, and junk bonds are at or near highs for the year. I called the bottom in Natural Gas within 40 cents, and mercifully baled on my one short in US government bonds, the TBT. What we are seeing is a global surge in liquidity as cash emerges from the bomb shelter, squints at the day light, and then rushes to buy the first thing it can find. Everything is going up, regardless of fundamentals. It is the proverbial tide that is lifting all boats. You can make a lot of money in these conditions, but there is no way of knowing if this will last for one week, or another year. But they can go on much longer than you think. In the last two liquidity driven markets I traded, Japan in the eighties and NASDAQ in the nineties, fundamental analysts railed against the tide for years, claiming that stocks were overvalued, each call getting their office moved ever closer to the elevator and men’s bathroom. When someone finally did throw the switch on these markets, it got dark amazingly fast. Tokyo went out at an all time high on the last day of 1989, and then dropped a staggering 45% in January. NASDAQ plunged just as fast from its 2000 top. The one thing we can all be certain about is that the survivors have vastly improved their risk control after our recent crash. Make hay while the sun shines, but keep your finger hovering over that mouse. The level of risk is definitely high than it was in March. When the next real downturn starts, it could resemble a flash fire in a movie theater.

Oct 19 11:27 AM

[Bryan Gomez:]

A flash fire in a movie theatre; cash from the bomb shelter. What can I say. I am going to use them soon.

Oct 19 11:48 AM

[elwind45:]

That last chart shows the index a ways from its 50 day moving average! I am banking on true hedge fund redemptions and not just when the chairman gets arrested!

Oct 21 06:03 AM