There’s nothing to be bearish about regarding the stock market these days. I’ve reviewed my 9 point “Bear Market Checklist” of indicators and it is a perfect 0-for-9. Not even one indicator on the list is even close to flashing a warning sign so pop a pill and relax. There’s no immediate danger threatening stocks.
So writes Lou Basenese (www.wallstreetdaily.com) in edited excerpts from his original article* as posted on his site under the title The Most Nagging Question About Stocks.
This post is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Intelligence Report newsletter (see sample here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
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Basenese goes on to say in further edited excerpts:[The first 4 indicators are in Part 1 of this article entitled Pop a Pill & Relax ! There’s NO Immediate Danger Threatening Stocks. Below are the remaining 5 indicators:]
~Bear Market Warning Sign #5: A Peak in New 52-Week Highs
Bull markets can’t keep rising on the backs of a few stocks. To the contrary, the rally must be broad-based – have “breadth” as Wall Street pros like to say – and we can easily measure the rally’s breadth by monitoring the number of new 52-week highs.
An early warning sign that a run-up might be losing steam is a declining number of stocks hitting new 52-week highs…Ned Davis Research found that the average bull market ends 30 weeks after the number of new 52-week highs tops out….[and that just happened this past Wednesday when,] an astounding 37.2% of stocks in the S&P 500… hit new 52-week highs [source: Bespoke Investment Group]. Therefore, based on the averages, even if that reading ends up being the tippy top, this bull market could endure until December 11, 2013.
~Bear Market Warning Sign #6: Cash Crunch
For stocks to keep hitting new highs, investors need to keep buying more shares, and that takes cash but, unlike the government which can simply print more money as needed, individuals can’t. [Therefore,] by monitoring cash balances on the sidelines, we can determine if there’s any fuel left to propel share prices higher – once investors find themselves in the buying mood.
Again, there’s nothing to worry about right now. Although…investors are rotating out of money market funds into stocks, there’s still plenty more cash to go around.
Any way you look at it, there’s more than enough cash to keep fueling this rally.
~Bear Market Warning Sign #7: Get Shorty!
The “smart money” has a pretty good track record of increasing their short bets ahead of stock market declines. Therefore, if we’re so overdue for a correction, we should see short interest creeping higher – but that’s not happening…They remain completely noncommittal [with] the short interest as a percentage of float for the S&P 1500 Index…at a measly 5.7%…[which] is almost exactly where it stood one month ago…yet the S&P 500 Index has rallied another 5% since that time.
~Bear Market Warning Sign #8: Runaway Valuations
Bull markets give way to bear markets when valuations get overstretched…Prior to the dot-com collapse and the Great Recession, the price-to-earnings (P/E) ratio for the S&P 500 Index reached almost 30…[but] today it stands a tad over 16. We’re nowhere close to the danger zone, not to mention, we’re looking good on a forward P/E ratio basis, too.
As of May 10, the forward P/E ratio stood at 14.2, which is only slightly above the 10-year average of 14.1, according to FactSet.
~Bear Market Warning Sign #9: Stocks Can Only Go Up
The time to be wary of a stock market collapse comes when everyone (and their mom) gets bullish and starts buying stocks…[but] that’s not now…We’re nowhere close to a Great Rotation into stocks. There’s no one running around saying that “stocks can only go up” – like they did about real estate not too long ago.
The data backs me up, too…The most recent sentiment readings from the American Association of Individual Investors (AAII), for instance, checked in at 38.5%, compared to an average reading of 38.8% since 1987. Thet’re not even close to being out of whack and the latest bearish sentiment reading clocked in at 29.3%, which is right in line with its long-term average of 30.6%.
Then there’s the STALSTOX Index, which measures the average recommended allocation for stocks by U.S. chief strategists. It’s not overwhelmingly bullish, either. Currently, it rests at 49.2%, down from 61% at the start of 2012.
If you’re prone to worry, I suggest you keep this checklist handy. It’s a much more reliable way of pinpointing exactly when this bull market is losing steam.
Ahead of the tape,
(Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)
*http://www.wallstreetdaily.com/2013/05/17/bear-market-indicators-2/ (© 2013 Wall Street Daily, LLC. All rights reserved.)
Related Articles for a Balanced View:
A. Optimistic Views of the Market
Right now there’s nothing to be bearish about. I say that with conviction, because my “Bear Market Checklist” is a perfect 0-for-9. Heck, not a single indicator on the list is even close to flashing a warning sign. We’ve got nothing but big whiffers! Take a look. Pop a pill and relax. There’s no immediate danger threatening stocks. Read More »
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B. Pessimistic Views of the Market
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- printed stimulus cash seeking a home and
- sheer technical momentum
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