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Markets – Macro – Stocks – Charts – Alerts

The Age of Aquarius

AquariusI 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:

SPX
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.

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4 Responses »

  1. market will correct. We just don’t know when. However, the extent to which many traders hate the rallies, “know” the market is overdone, and continue to short new all time highs–that kind of sentiment is likely at an all time high as well. Or at least it seems that way to me. Until the “hate the rally” sentiment cools off, I believe we have more upside.

    • I hear this argument a lot and I think it has some validity, however the marginal buyers continue to be central banks directly (now publicly admitted), corporate buybacks and of course mutual funds on auto pilot. Low volumes permit algo stop hunts to also take advantage of the lack of selling. All these factors tend to exacerbate the dislocation.

      • agree with you that it’s a dislocation. but what will stop it from continuing? just a few weeks ago my brother who’s been out of the market since early 2008 decided to get back in. I believe that’s a tell: a top is near. But it won’t happen until many many more who have been on the sidelines for much of this bull market decide to jump back in the pool

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