Markets – Macro – Technicals

High Risk

High RiskThere are 3 certainties in life: 1. Death 2. Taxes and 3. Being called an idiot for being cautious during a stock mania. The aura of inevitability has taken hold again a mere 3 and a half weeks after a sizable 10% correction in US stock markets and indeed complacency is back in control as the $VIX was trashed from 31 to the mid 12s just yesterday.

On October 15 the $SPX was negative for the year. Not by much, but it was down by almost 2% nevertheless. Now we are up over 10% on the year. Even during a time of superlatives still this kind of move has to raise eyebrows.

The trannies? Up over 18% off the lows. These are moves that used to take years or even in bullish times would be considered strong events in a matter of months. Not here. Not now. We do it in a matter of weeks, not even a month is required.

In the course of all this massive ramping we have have reached overbought levels either rarely seen or never in some sectors. The measure I want to point out here is the MACD. It has reached extreme levels that have traditionally marked a very poor risk/reward level to continue to be long stocks.

It’s true that fund managers, algos, central banks and those driving corporate buybacks can’t help themselves but buy stocks here, but it is also true that buying for buying’s sake invariably ends ugly.

Now the when and how remains the undiscovered country, but as the MACD levels in the charts below indicate, now may really not be a good time to chase:

$DJIA:

INDU

$SPX:

SPX

$XLU:

XLU

$TRAN:

TRAN

So as you can see for some of these sectors we are at the most overbought levels ever. Not by a little, but by a lot which leads me to ponder: If everyone is expecting a chase into year end, maybe we have already seen it.

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1 Response »

  1. from a technical analysis standpoint. If you look at the major components of the SPY, like apple and exxon mobile, General Electric…we have way higher to go. Perhaps another 20% from here

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