Highway To The Danger Zone

In recent years momentum has carried markets further in both directions as both rallies and declines seem virtually endless. Indicators that I have been using for years to detect counter-trend moves have suddenly stopped working. While it has become more difficult to anticipate counter-trend moves I have not given up. The list of reasons to be wary of the market in the short term is growing:

  • Super-bear Nouriel Roubini turned bullish yesterday.

  • SentimenTrader basically gave up on calling a top despite many of his indicators pointing to excessive optimism.

  • On February 1 the S&P 500 closed at 1324 and the NYSE scored 302 new highs. Yesterday, the S&P 500 closed at 1347 and the NYSE scored 157 new highs. This is a negative divergence and the same can be seen at the Nasdaq.

  • I am starting to feel like an idiot being negative.

  • The 10 day moving average of the CBOE put/call is now firmly in sell territory

  • Hulbert Nasdaq newsletter writers now have their highest ever 3 week average recommended exposure.

  • Rydex traders are excessively bullish.

  • Last week was the highest week ever for junk issuance


1 comment:

Stubborn Like Ox said...

[...] I remain wary of the overall market and am at a small net long position. Yesterday, Rydex traders moved to their largest net long position ever save for May of  last year. This was right before a 20% correction. The AAII bulls now outnumber the bears by 51.6% to 20.2%. Mark Hulbert notes in his column that insiders are selling at a pace not seen since July. This is in addition to the warning signs I pointed to yesterday. [...]