Structurally Over-bullish<\/strong><\/p>\n Below is a chart showing the 10-week exponential moving average of the Equity Put\/Call ratio (CPCE) that we review periodically in NFTRH<\/a>\u00a0for a view of the structural over-bullish situation in stocks. I write structural because it has extended much longer than extremes in the CPCE have done at previous \u2018bull killer\u2019 danger points, after which risk was realized in the form of moderate to severe corrections.<\/p>\n The trend began logically enough at a \u2018bear killer\u2019 reading in the midst of max pandemic fear. We noted at the time that market participants were not just bearish, not just risk-averse, but absolutely terrified. So the recipe is this: take 1 lump of terrified investors, add a heaping helping of the Fed\u2019s money printing and voila, enjoy the taste of a slingshot rally that is very filling despite its inflationary odor.<\/p>\n Risk? Well, when SPX took out the previous 2020 high last summer we established a target of 4400 (conservative) to 4600 (at an extreme). The market is in the target zone, CPCE has begun to labor up and out of the structurally over-bullish floor and well, it could be a signal of a later stage bull market. But a warning about jumping into a heavily active bearish position is that using the run-up to 2016 as an example, the pressure can build for months, even years before risk is realized. Another caveat to going full frontal bear is that the EMA 10 is starting to hook down again as pressure is being relieved lately.<\/p>\n Sentiment Micro Twitches<\/strong><\/p>\n Little sentiment squalls have sustained the bull all through the 16-month rally. These have shown up among Ma & Pa (AAII) and investment managers alike (NAAIM). Election this, Fed taper that, and Delta Variant the other thing\u2026 the market has found something to get nervous about periodically over the last year and the media have been all too happy to broadcast the scary news in its eyeball harvesting way.<\/p>\n I have a theory that a market that knows it came from unnatural means (i.e. the Fed printed the bull market as surely as it printed the munny it is measured by) is subject to these sentiment squalls more so than one that is relatively viable in its own right (do we even have those anymore?). In other words, the market, a collection of you, me, ma, pa, human and algo traders alike, is paranoid about its own viability, and with every nerve-wracking news event, a twitch. \u2018mmm\u2026 yummy\u2019, thinks the market, \u2018gimme more\u2019.<\/p>\n I\u2019ve marked up this\u00a0Sentimentrader<\/a>\u00a0graph of Smart & Dumb money indicators to show the little squalls of fear that have cropped up among the Dumb indicators over the course of the bull phase. We have noted in\u00a0NFTRH<\/a> that the market tends to feed off of these bouts of fear and with market trends up the view, despite my personal thoughts about valuations, structural sentiment and indeed the inflated origins of the bull market can only be bullish (with an understanding of the ongoing risk backdrop and need for management thereof).<\/p>\n But if we are going to note structural over-bullishness per the CPCE we must note another structural consideration that appears to favor the bullish view; Dumb indicators have been in a trend of fading the market rally while more recently Smart indicators have bought it. So, my bearish friends, there\u2019s a caveat to concern yourselves with.<\/p>\n Gold: The Ultimate Boom\/Bust Gauge<\/strong><\/p>\n Stocks, Commodities, Materials, etc\u2026 these are cyclical markets and on this cycle, they are inflation-sensitive markets as well. The Fed and its central banking fellows manufactured a bullish global macro to run on inflation, and on inflation, it is running.<\/p>\n Important:<\/strong> Gold is not an asset market so much as an anchor to value, to something tangible and real. Gold does not move. Gold sits on its heavy ass. Gold sits while the other stuff orbits around it, moving up and down in relation to reflect bullish and bearish macro environments alike. Today the macro is bullish and it has been overtly bullish for a year. Don\u2019t personalize it and most of all don\u2019t try to always actively fight the good fight through thick and thin. Holding gold for the long-term is a very good strategy but fighting a macro manufactured by inflation will not work until said macro falls apart in an inevitable bust. Again, gold is real, heavy, and of value. It\u2019s time will come. But right now artifice and inflation are winning (duh).<\/p>\n Gold led commodities and stocks in the initial recovery out of the COVID-crash. But as the (funny) munny printing took hold and the confidence of the average casino patron began to firm a year ago the cyclical items began to rise in relation to gold. Folks, contrary to what the buggish gold community lecture about, gold is doing exactly as it is supposed to do right now while bullish cyclical trends and thus, confidence remain intact.<\/p>\n When these ratios to gold break down from the uptrends it will be time to actively (and loudly) call\u00a0RISK!<\/strong><\/em>\u00a0As they stand now, it looks more like a resumption of the uptrends after several sideways months may be in play. But let\u2019s clear the summer slack season before being too firm on one direction or the other. Da boyz is in dem Hamptins and dey be sippin\u2019 da summah cocktails. When the market is back at full attendance post-Labor Day we\u2019ll get a truer view of the macro.<\/p>\n Participation Dropping<\/strong><\/p>\n As the bull matures it is losing sponsorship.\u00a0NFTRH<\/a>\u00a0tracks several indicators of market internals including breadth and participation. Here is one view of fading participation since March, as headline SPX (along with its headlining fellows DJIA and NDX) happily motors along while less visible legs of the macro table get kicked out from under it.<\/p>\n Come to think of it, this is probably a picture that tells us why the Dumb money noted above is fading the bull. Dumb indicators must be tied into the majority of stocks and the little guy tends to participate with smaller caps, looking to score the next baby Amazon or Apple.<\/p>\n Whatever this and other views we track are not healthy from a market breadth perspective. It\u2019s obviously an indicator of clear and present risk<\/strong>\u00a0unless it clears.<\/p>\n Valuation Risk<\/strong><\/p>\n Every time I buy a Cloud\/SaaS\/Remote Tools related stock or a component of the ARKK ETF I think (and often note in the NFTRH Trade Log) \u201covervalued\u201d. If nothing else, healthy risk management means having an understanding of what you are buying and why you are buying it. This post is getting a little long in the tooth and so I am going to let Jill Mislinski of Advisor Perspectives, a solid fundamental source, close out this article.<\/p>\n As pointed out frequently in\u00a0NFTRH<\/a>, risk vs. reward and market prices are two completely different things. Risk is a factor to be managed. One definition:<\/p>\n Risk:<\/strong>\u00a0noun; the possibility that something unpleasant or unwelcome will happen.<\/em><\/p>\n Note the word \u201cpossibility\u201d. Manage accordingly.<\/p>\n Is the Market Still Over Valued?<\/a><\/p>\n As we\u2019ve frequently pointed out, these indicators aren\u2019t useful as short-term signals of market direction. Periods of over- and under-valuation can last for many years. But they can play a role in framing longer-term expectations of investment returns. At present, market overvaluation continues to suggest a cautious long-term outlook and guarded expectations. However, at today\u2019s low annualized inflation rate and the extremely poor return on fixed-income investments (Treasuries, CDs, etc.) the appeal of equities, despite overvaluation risk, is not surprising.<\/em><\/p>\n Best, For \u201cbest of breed\u201d top-down analysis of all major markets, subscribe to NFTRH Pre<\/strong>mium<\/strong><\/a>, which includes an in-depth weekly\u00a0market report<\/strong>, detailed\u00a0market updates,<\/strong>\u00a0and\u00a0NFTRH+\u00a0<\/strong>dynamic updates and chart\/trade setup ideas. Subscribe by\u00a0PayPal<\/strong>\u00a0or\u00a0credit card<\/strong>\u00a0using a button on the right sidebar (if using a mobile device you may need to scroll down). Keep up to date with actionable public content at\u00a0NFTRH.com<\/a>\u00a0by using the\u00a0email form on the right sidebar<\/strong>. Follow via\u00a0Twitter<\/strong>\u00a0@NFTRHgt<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" The stock market is at high risk, but\u2026 The \u2018but\u2019 is the old saying \u201cmarkets can remain\u00a0[seemingly] irrational longer than you can remain solvent\u201d if you fight a trend that is intact at any given point. Since March 2020 that trend has been up. Structurally Over-bullish Below is a chart showing the 10-week exponential moving […]<\/p>\n","protected":false},"author":31,"featured_media":55335,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[3438,4273,23,9526,2017,102],"class_list":["post-55332","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ino-com-contributors","tag-chart-analysis","tag-gary-tanashian","tag-gold","tag-notes-from-the-rabbit-hole-nftrh","tag-stock-market","tag-technical-analysis"],"yoast_head":"\n![\"equity](\"https:\/\/i0.wp.com\/nftrh.com\/wp-content\/uploads\/2021\/08\/cpce.png?resize=840%2C490&ssl=1\")
<\/a><\/p>\n![\"naaim\"](\"https:\/\/i1.wp.com\/nftrh.com\/wp-content\/uploads\/2021\/08\/naaim.png?resize=840%2C420&ssl=1\")
<\/a><\/p>\n![\"sentiment\"](\"https:\/\/i2.wp.com\/nftrh.com\/wp-content\/uploads\/2021\/08\/smartdumb-1.png?resize=840%2C409&ssl=1\")
<\/a><\/p>\n![\"gold\/spx](\"https:\/\/i0.wp.com\/nftrh.com\/wp-content\/uploads\/2021\/08\/spxgold.png?resize=840%2C840&ssl=1\")
<\/a><\/p>\n![\"\"](\"https:\/\/i0.wp.com\/nftrh.com\/wp-content\/uploads\/2021\/08\/spx-2.png?resize=840%2C840&ssl=1\")
<\/a><\/p>\n![\"\"](\"https:\/\/i2.wp.com\/nftrh.com\/wp-content\/uploads\/2021\/08\/dshort.png?resize=840%2C615&ssl=1\")
<\/a><\/em><\/p><\/blockquote>\n
\nGary Tanashian<\/a><\/p>\n