State of the Market Address:
- The Dow remains below 21,000.
- Shiller's Adjusted S&P P/E ratio is now at 29.40. Arguably the second highest level in history (if we adjust for 2000 distortions) and right behind 1929 top at 29.55.
- Weekly RSI at 77.74. At severely overbought levels. Daily RSI is at 66.80 - more or less neutral.
- Prior years corrections terminated at around 200 day moving average. Located at around 17,250 today (on weekly).
- Weekly stochastics at 88.05. Overbought level associated with prior market peaks. Daily at 37.70 - neutral.
- VIX/VXX either at or approaching their historic lows. Commercial VIX long interest is slightly lower, but still near record levels. Now at 110K contracts 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 3X, Russell 2000 is at 3X and the Nasdaq is at 1X 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 both daily and weekly charts. Plus, the "smart money" is positioning for some sort of a sell-off.
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