The Stock Market: There's NOTHING to Be Bearish About ? Take a Look
Lorimer Wilson on 2013-05-18 15:06:26.0
There's nothing to be bearish about regarding the stock market these days. I've reviewed my 9 point??"Bear?? Market Checklist" of indicators??and it is a perfect 0-for-9. Not even??one??indicator on the list is even close to flashing a??warning sign so pop a pill?? and relax. There's no immediate danger threatening stocks.
So writes Lou Basenese (www.wallstreetdaily.com) in edited excerpts from his original article* as posted on his site under the title The Most Nagging Question About Stocks.
This post is presented by?? Lorimer Wilson, editor of www.FinancialArticleSummariesToday.comandwww.munKNEE.comand the FREE Intelligence Reportnewsletter (see sample here ' register here) and may have been edited ([ ]), abridged (') and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
~Bear?? Market Warning Sign #5: A Peak in New 52-Week Highs
Bull markets can't keep rising on the backs of a few stocks. To the contrary, the rally must be broad-based - have "breadth" as Wall Street pros like to say - and?? we can easily measure the rally's breadth by monitoring the number of new?? 52-week highs.
An early warning sign that a run-up might be losing steam is??a declining number of stocks hitting new 52-week highs…Ned Davis Research found that the?? average bull market ends 30 weeks after the number of new 52-week highs tops out….[and that just happened this past Wednesday when,] an astounding 37.2% of?? stocks in the S&P 500… hit new 52-week highs [source: Bespoke Investment Group].??Therefore, based on the averages, even if that reading ends up being??the tippy top, this bull market could endure until December 11, 2013.
~Bear?? Market Warning Sign #6: Cash Crunch
For stocks to keep hitting new highs, investors need to keep?? buying more shares, and that takes cash but, unlike the government which can simply print more money??as needed, individuals can't. [Therefore,] by monitoring cash balances on the?? sidelines, we can determine if there's any fuel left to propel share prices?? higher - once investors find themselves in the buying mood.
Again, there's nothing to worry about right now. Although…investors are rotating out of money market funds into stocks, there's still?? plenty more cash to go around.
[As the above chart shows,] there's another $2.583 trillion in money market?? mutual funds according to the latest tally by the Investment Company Institute. That is??down about $1.2 trillion since the bull market began but it's about $1 trillion more than right before the dot-com collapse, and it's about $2 trillion more than the lows hit?? during the early 1990s.
Any way you look at it, there's more than enough cash to?? keep fueling this rally.
~Bear?? Market Warning Sign #7: Get Shorty!
The "smart money" has a pretty good track record of?? increasing their short bets ahead of stock market declines. Therefore, if we're so overdue for a correction, we should see short interest creeping higher - but that's not happening…They remain completely noncommittal [with] the short?? interest as a percentage of float for the S&P 1500 Index…at a measly 5.7%…[which] is almost exactly where it stood one month ago…yet the S&P 500 Index?? has rallied another 5% since that time.
Bull markets give way to bear markets when valuations get?? overstretched…Prior to the dot-com collapse and the Great?? Recession, the price-to-earnings (P/E) ratio for the S&P 500 Index reached??almost 30…[but] today it stands a tad over 16. We're nowhere close?? to the danger zone, not to mention, we're looking good on a forward P/E ratio?? basis, too. As of May 10, the forward P/E ratio stood at 14.2, which is?? only slightly above the 10-year average of 14.1, according to FactSet.
~Bear?? Market Warning Sign #9: Stocks Can Only Go Up The time to be wary of a stock market collapse comes when?? everyone (and their mom) gets bullish and starts buying stocks…[but] that's not now…We're nowhere close to a Great??Rotation into stocks. There's no one running around saying that "stocks can??only go up" - like they did about real estate not too long ago.
The data backs me up, too…The most recent sentiment readings from the American??Association of Individual Investors (AAII), for instance, checked in at 38.5%, compared to an average reading of 38.8% since 1987.??Thet're not even?? close to being out of whack and the latest bearish sentiment reading clocked in at?? 29.3%, which is right in line with its long-term average of 30.6%.
Then there's the STALSTOX Index, which measures the average?? recommended allocation for stocks by U.S. chief strategists. It's not overwhelmingly??bullish, either. Currently, it rests at 49.2%, down from 61% at the start of?? 2012.
Bottom line:
If you're prone to worry, I suggest you keep?? this checklist handy. It's a much more reliable way of pinpointing exactly when this bull market is losing steam.
Ahead of the tape,
(Editor's Note: The author's views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)
*http://www.wallstreetdaily.com/2013/05/17/bear-market-indicators-2/'?(?? 2013 Wall Street Daily, LLC. All rights reserved.)
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