State of the Market Address:
- The Dow continues its sell-off.
- Shiller’s Adjusted S&P P/E ratio is now at 28.76 Arguably the second highest level in history (if we adjust for 2000 distortions) and right behind 1929 top at 29.55.
- Weekly RSI at 66.44. Remains at overbought levels. Daily RSI is at 49.19 – neutral.
- Prior years corrections terminated at around 200 day moving average. Located at around 17,300 today (on weekly).
- Weekly stochastics at 67.70. Approaching neutral levels. Daily at 18.74 – oversold.
- NYSE McClellan Oscillator is at -9. Neutral
- VIX/VXX remain near their historic lows. Commercial VIX long interest jumped higher and remains at near record levels. Now at 117K contracts net long.
- Last week’s CTO Reports suggest that commercials (smart money) are shifting their positioning to net short. In fact, short interest jumped dramatically as compared to last week. For instance, the Dow is 8X, the S&P is at 2X, Russell 2000 is at 2X and the Nasdaq is at 6X 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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