Daily Stock Market Update & Forecast – Feb. 8th, 2017

State of the Market Address:

  • The Dow continues to trade above 20K.
  • Shiller's Adjusted S&P P/E ratio remains around 28.5. Arguably the second highest level in history (if we adjust for 2000 distortions) and right behind 1929 top at 29.55.
  • Weekly RSI at 71. Approaching severely overbought. Daily RSI is at 60 - neutral.
  • Prior years corrections terminated at around 200 day moving average. Located at around 17,100 today (on weekly).
  • Weekly stochastics remain at 97.16. Extremely overbought level associated with prior market peaks. Daily at 62 - neutral.
  • VIX/VXX either at or approaching their historic lows. Commercial VIX long interest approaching record highs. Now at 9X net long.
  • Last week's CTO Reports suggest that commercials (smart money) are shifting their positioning to net short.  For instance, the Dow is 4.5X, the S&P is at 2X and the Nasdaq is at 4X short. That is a significant short position against the market.

In summary: For the time being the market remains in a clear bull trend. Yet, a number of longer-term indicators suggest the market might experience a substantial correction ahead. The market remains at extreme valuation levels and severely overbought on weekly charts. Plus, the "smart money" is positioning for some sort of a sell-off. Short-term, the market is back to being overbought.

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