I keep hearing that there is no retail enthusiasm in the market and therefore no froth and therefore plenty of headroom with the line of least resistance continuing higher.
Maybe.
But Vanguard, a mutual fund company, announced two weeks ago that it just hit $4 trillion in total assets.
Retail investors are plowing money into the stock market as it hits record highs.
And money managers mandate to put that money to work and ‘follow orders' is being exercised with the result that the DJIA has done something it has never before done:
12 consecutive record closes.
No froth?
The average S&P 500 company is now trading at a multiple of nearly 27 X its annual profits.
This is 70% higher than the long-term average of 15.6.
No froth?
The point is that investors were burned twice in this century trying to play stocks. Now they have adapted what one fellow trader calls the “lazy river” approach by putting money into ETF's or index funds as a way of assuaging risk—or so they think.
Non-thinking passive investing is all the rage versus “thinking”.
If you stop to think about it, money plowed into ETF's must turn around and buy the underlying stocks without any regard to valuation or timing or anything.
This seemingly virtuous circle can work just the opposite way.
Any time market participants think they can get a free lunch and have found the key to the market, invariably, some SOB changes the lock.
Another streak was broken yesterday. After 6 consecutive days of DJIA rising in tandem with the long bond, bonds sold off as the DJIA continued higher.
Last Friday looked to be a change in character with the DJIA/SPX closing down but another rally on the run-off snatched defeat from the jaws of the bears looking for a change in character.
Or did it?
Friday's internal weakness as measured by net up/down volume was historic even when measured against records set early this month.
Remarkably, Friday's weak internals after a 70 point SPX rally over the prior 12 sessions was even weaker than records set at the beginning of February.
The 3 weakest days of internals with the SPX at all-time highs in the last three years were late September 2014 prior to a waterfall decline, late July 2015 prior to a waterfall decline and last Friday.
Specifically, the prior two dates were September 19, 2014 and July 20, 2015.
Importantly, the prior two instances marked interim tops in the SPX. No further headway was made prior to those waterfall declines.
Along with last Friday, these are the weakest three days at record SPX highs in the last 3 years.
But to put this into perspective, these are the 3 weakest days in the last 52 years.
So while some technicians who have only been around for one cycle, if that, argue that runaway legs can go much higher on a percentage basis as they did a couple of times in 1987, to mention one example, when the last record consecutive run was set, the fact is the internals were not weak in 1987 as they are here.
Interestingly, the last streak similar to the present streak in the DJIA occurred in 1987, a year where ‘portfolio insurance' was all the rage and was supposed to resolve the issue of risk. Is the ETF rage today, Portfolio Insurance on steroids?
The point is risk is risk.
Of course, 1987 was 360 months ago. But cycles are voodoo economics, right?
If past is prologue, there is a waterfall decline on the table and all that remains to be seen is WHEN…not IF.
I can't help but wonder whether President Trump's State of the Union speech will be a catalyst.
Be that as it may, on March 15, 2017, the debt ceiling holiday that Obama and Boehner put together will expire.
It will freeze at $20 trillion.
It will be truly interesting to see if the Fed raises rates in the face of this looming crisis.
March has been a major turning point this century.
There was the March 2000 Bubble Top.
The March 2003 liftoff.
March 2007 was the low prior to a 200 point run for the roses and a primary high in July.
There was the March 2008 ‘Bear Stearns' low which when snapped led to a crash.
There was the March 2009 low.
There is a 17 year cycle which sets up this March which ties to the 10 year cycle.
Maybe something, maybe nothing, but the SPX hit 2371 yesterday. This is straight across and opposite the 2007 high of 1576.
It is also straight across and opposite 2084, the pre-election low.
In other words from 2084, the SPX has rallied 540 degrees which is a true square or a cube (90 degrees of 6 sides of a square being 540 degrees).
The news breaks with the cycles and tonight we get news…or fake news.
99.999% of traders have never even seen the Square of 9... let alone understand its potential.
Do you dare to be different?
spot on march tide !
But how far will this go ????
“There is a 17 year cycle which sets up this March which ties to the 10 year cycle.”
Elliott wave cycle is confirming the same……
load the boat ?