like a flock of seagulls hovering over a freshly washed sports car ...
the Short Report (freebie) ...
(snip)"The warning signs of a stock-market correction have been looming overhead like a flock of seagulls over a freshly washed sports car," observes our colleague Jeff Clark, the insightful editor of the Short Report. "Yet investors continue to drive with the top down."
One of the "warning signs" that troubles Jeff is the slumping share price of Merrill Lynch (NYSE: MER ). As Jeff observed in the January 12th edition of the Rude Awakening, "This stock is one of the best leading stock market indicators I've ever seen. If the price action of MER is bearish, you can almost always bet the overall market is due for a fall. I even had a saying around my brokerage office, 'As Merrill goes, so goes the stock market.' Right now," Jeff continued, "the chart of Merrill Lynch (NYSE: MER ) looks bearish."
MER has slumped nearly 6% since January 12th, which is one reason why Jeff suspects the S&P 500 might also begin slipping from its recent all-time highs.
"Last May," Jeff remarked this morning, "MER peaked on the day the company announced record earnings. It then dipped below its 50-day moving average and ultimately lost 20%. The S&P 500 followed shares of MER lower and gave up 8%. Last month, MER peaked on the day the company announced record earnings. Last Friday, it dipped below its 50-day moving average. Does anyone care to guess what should come next?"
The latest report from the CFTC's Commitment of Traders Report provides additional evidence that the stock market might soon retreat from its highs. The "smart money" Commercial traders have been increasing their net-short position in S&P 500 futures contracts for several weeks.
The Commercials, often called the "smart money," have amassed their largest net-short position since just before the stock market selloff of last May and June. Not surprisingly, the small speculators – a.ka., the "dumb money" - are taking the other side of this trade. This usually-wrong crowd has amassed its largest net-long position in several months.
The smart money isn't always smart, of course…and the dumb money isn't always dumb. But when the dumb-money begins to exhibit extreme confidence and complacency, the smart money usually begins to look quite smart indeed. "(snip)
Re: like a flock of seagulls hovering over a freshly washed sports car ...
You don't think the stock market will be overpriced even if it dropped 10+%?
Re: like a flock of seagulls hovering over a freshly washed sports car ...
if you go by historic Price / Earnings ratios, it would have to drop a whole lot farther than 10% to become 'fairly' priced.
Of course the flip side of the P/E ratio is corporate earnings, which have indeed been at record levels for a few sectors i.e. energy, financial services, etc. However, other sectors haven't done nearly as well from a corporate earnings standpoint.
Tack on the 'hot money has to go somewhere' theory, the 'newly printed money goes to the stock and bond markets first' theory, and we supposedly have an 'it's different this time' P/E equation. The 'tin foil hat' crowd would point out that these exact words were first spoken in the summer of 1929.
Re: like a flock of seagulls hovering over a freshly washed sports car ...
Corrections happen. Things just can't keep going on the upward trajectory they have been.
If you're older and relying on investment income to live off of, corrections are awful. If you're younger, like me, they can be a great chance to snap up some bargain stocks. I did just that over the summer during the brief market correction then and have gotten good returns on what I bought.
I'm sure it's looming, but I don't think it'll be quite the doomsday scenario some people are predicting.
Re: like a flock of seagulls hovering over a freshly washed sports car ...
Stocks were high...
Debt was massive....
Before the depression...
But don't worry - we got The Fed looking out for us small folk.
But hey - the market went up once they found out 13,000 people were to lose their job.
Phew! Inflation diverted.