I admit it. I like deals and I like value. I don’t like paying for overpriced stuff even if it’s all the rage. While Janet Yellen and many others are busy assuring everyone how stock prices are a wonderful deal and nothing is overvalued the market’s history tells a different tale.
I’ve been watching the weekly chart of the $SPX for a while now. We have observed a historical deviation from the 100 weekly moving average that has been getting more extreme. Today it reached over 310 points or about 19%. That’s pretty out there especially at a time when the $VIX is near historic lows. But no worries they tell you, the $VIX was even lower in 2007. True, yet that was also the year that the $SPX sported a negative RSI divergence very similar to the one we are seeing now and just before the bottom fell out:
Now they are holding up cardboard signs and shouting: “It’s different this time, markets will never correct or go down. This is the dawn of the age of Aquarius.” But amidst all the shouting beware they are more likely selling pencils from a cup.