No Pause For $1500 Even As Red Flags Grow Brighter
Dr. Duru | Jan 28, 2013 03:57AM ET
: 83.6% (17th overbought day)
VIX Status: 12.9
General (Short-term) Trading Call: Initiate small short position if holding none already, sell some longs.
Commentary
On Thursday, I tweeted that I “had to” reload on some ProShares Ultra S&P 500 ETF (SSO) puts as the S&P 500 touched 1500. I also sold my latest round of iPath S&P 500 VIX ST Futures ETN (VXX) puts. It looked like fortuitous timing as the S&P 500 pulled back on the day from that psychologically important round number. However, on Friday, the market went back to grinding higher and this time closed at the high of the day and a fresh 5+ year high at 1502.96.
T2108 has gone nowhere as the S&P 500 keeps grinding higher. It has bounced in a very narrow range between 80 and 86% for most of this overbought period. It signals to me that no new stocks are joining the fun and the same stocks are getting more and more stretched. Adding to the warnings of extreme overbought conditions is the historic 8-day run of daily gains for the S&P 500.
According to Bespoke Investments, As Worries Ebb, Small Investors Propel Markets “:
“There is no surefire data to use to gauge the behavior of retail investors. Some of those who left stock-focused mutual funds in recent years have put the money instead into specific stocks or exchange-traded funds, which hold baskets of stocks. But analysts agree that most indicators point to rising confidence in the market.
The level of bullishness among small investors has nearly doubled just since mid-November, according to a weekly survey conducted by the American Association of Individual Investors.
In the last three weeks, the market data company Lipper reported that $14.9 billion had gone into all stock-focused mutual funds, the most in any three-week period since 2001. Mutual funds focused specifically on American stocks have collected $6.8 billion since the new year, the most in all but one comparable period since the financial crisis.
This comes after investors had removed $416 billion from stock-focused mutual funds since the start of the financial crisis, according to Lipper. Those outflows continued even as the market climbed over the last few years.”
Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes) Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)
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Full disclosure: long VXX shares, long AAPL shares and call spread, long SSO puts, long TLT puts
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