A.K.A. “Alphabet Soup”:
· Percentage of component stocks of the S&P500 above their 50 day MA: 5.21%
· Put/Call (Equity 20 MA): .66
· Put/Call (Index 20 MA):1.48
· Put/Call (Total 20 MA): 1.01
· ECRI Growth: -6.9%
· ECRI Coincident: +3.1%
· Shiller PE: 19.99
· Slope of Yield Curve (10 yr minus 3 month T-bill): 2.76
· 50 day MA about to cross under the 200 MA
· Beginnings of a “head and shoulders” formation- recent failed test of 1115 and a corresponding new low that exhibited stronger selling conviction
· % of S&P500 components with an RSI reading below 30: 15.3% (vs. a reading of 27% which typically marks market rallying points)
· Vix vs. its 50 and 20 day MA: at moderate levels, yet still not indicating an excess of pessimism
· Investor’s Intelligence Bull/Bear ratio: 1.32 (which is low, however a large number of “bullish” advisors/traders remain. Ideally I would like to see this number fall below 1 to prove that enthusiasm has been “washed out” of the street.)
· OEX put/call ratio: .76 (This ratio is often used as a metric to measure sentiment levels of sophisticated options traders. Many would say this is helpful in determining which side of the trade the “smart money” is on. In this case, the sophisticated investor remains constructively optimistic about a pending rally. However, readings below .5 typically signal a rapid reversal in market direction.)
Conclusion:
Due to a wide divergence in coincident and leading indicators, it is becoming increasingly likely that a dramatic slowdown in the broad economy is underway. The average American remains underemployed, over spent, and clueless about the once in a century structural changes to our system that are ensuing. The baby boomers’ are approaching retirement, debt levels are still astronomical, and fiscal and monetary policy is reaching its limits. In addition, Wall Street continues to gaze through the crystal ball of mean-reverting forecasting models that utilize only recent data (even data going back to 1950 is not sufficient; some prognosticators encourage analyzing the “Long Recession” of the late 1800’s). Complicating this ambivalence to sound analysis is the reality that the S&P500 remains overvalued on a historical business cycle adjusted as well as a traditional DCF basis (as espoused by the talented investor Jeremy Grantham). Furthermore, if you match the persisting unjustified bullishness of analysts and market participants with the over-valued and still-yet-to-be oversold nature of the S&P’s recent price action you will discover that “the party ain’t over yet”. I would wait for the drunks to spill out of club before trying to get back in for act II of the “recovery rally”.
September target: a failed test of 1220 (implying a strong rally from current levels and a persisting bear or sideways market [dead cat bounce or rubber-band effect]. I’ll post another update before September sharing my revised thoughts/flawed foresight)
July minimum target: 960 (a return to fair value on the standard and poor’s index)
