Daily Stock Market Update & Forecast – March 20th, 2017

State of the Market Address:

  • The Dow remains below 21,000.
  • Shiller's Adjusted S&P P/E ratio is now at 29.30 Arguably the second highest level in history (if we adjust for 2000 distortions) and right behind 1929 top at 29.55.
  • Weekly RSI at 77.11. At severely overbought levels. Daily RSI is at 63.08 - more or less neutral.
  • Prior years corrections terminated at around 200 day moving average. Located at around 17,300 today (on weekly).
  • Weekly stochastics at 84. Overbought level associated with prior market peaks. Daily at 36.14- neutral.
  • VIX/VXX either at or approaching their historic lows. Commercial VIX long interest is slightly lower, but still near record levels. Now at 104K 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 5X, the S&P is at 2X, Russell 2000 is at 2X 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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