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Bespoke Finds S&P 500 Most Overbought Since November 2009

Tyler Durden's picture





 

Following on our earlier observations courtesy of Sentiment Trader that the Nasdaq has hit its the most extreme bullish reading since 2005, and the dumb money confidence is the highest it has been in the same period of time, we now get confirmation from Bespoke that indeed stocks are now merely floating on a see of excess liquidity and nothing else. As Bespoke notes: "The chart below highlights the level at which the S&P 500 has traded relative to its 50-day moving average (DMA) over the last year (measured in standard deviations).  As shown in the chart, today’s close puts the S&P 500 into ’extreme overbought’ territory (2+ standard deviations above 50-DMA) and at its most overbought level since November 2009." Expect momentum chasers and dumb money speculators to go apeshit and to buy anything and everything in sight on this latest observation.

And while discussing the most euphoric market seen in years, here are John Hussman just released observations on market conditions:

As of last week, the Market Climate for stocks was characterized by an overvalued, overbought, overbullish, rising-yields syndrome that has historically been hostile for stocks. Clearly, we can't observe what the outcome will be in this particular instance. We can't rule out the possibility that investors will continue to speculate on the hope of ever larger deficits and some further combination of illegal or irresponsible Fed actions. From our standpoint, the return/risk profile of the equity market is the most negative that we ever observe historically, so we are willing to speculate neither on the hope for government wisdom, nor on the hope for government recklessness. Investors who are convinced that monetary and fiscal actions will drive the market ever higher can easily offset our hedges by establishing exposure to the S&P 500 or more speculative alternatives. What I can't do on behalf of those investors is violate our discipline and take a speculative exposure in an environment where the historical evidence indicates an extraordinarily hostile return-to-risk tradeoff.

Our objective remains to significantly outperform our benchmarks over the complete market cycle, with smaller periodic losses. I recognize that it has not been satisfactory simply to lose less than the S&P, but with smaller drawdowns, since the 2007 peak. Still, it would be an understatement to say this has been an unusual cycle. Given the broader set of Market Climates we have defined, I am confident that we will periodically observe more favorable market environments - possibly even in the coming months, without major changes in market valuation - where we will be able to accept risk in the expectation of positive returns. From my perspective, this is emphatically not one of them.

The Strategic Growth Fund remains fully hedged here. Given the hostile Market Climate, and the fact that individual stocks can decline indiscriminately from overvalued, overbought, overbullish, rising-yield peaks, we are also carrying a staggered strike hedge (which moves our put option strikes closer to "at-the-money" levels). Though we expect to close that position at the point where the return/risk profile of the market improves or implied option volatility increases significantly, the last thing we want is to be inadequately hedged in an indiscriminate selloff because we believed our stocks did not have much "beta." Strategic International Equity is also largely hedged, and we continue to establish corresponding hedges as we add new equity positions to the Fund.

...

Based on historical experience, we are likely to observe a clear acceleration of inflation only after short-term interest rates increase by about 15-20 basis points over a 6-month period, and those pressures will be worse if long-term rates are also rising (at that point, attempts to reduce short rates through Fed easing may have the paradoxical effect of increasing inflation expectations). For now, I continue to believe that the inflation thesis is most likely correct long-term, but that this doesn't necessarily translate into persistent inflation or interest rate pressures over the short or intermediate term. We continue to hold about 1% of assets in precious metals, about 1% in foreign currencies, and about 2% in utility shares.

 


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Mon, 12/13/2010 - 00:15 | Link to Comment Terminus C
Terminus C's picture

Buy the fucking dip bitchez!

Mon, 12/13/2010 - 00:26 | Link to Comment Ras Bongo
Ras Bongo's picture

Sheep!

Mon, 12/13/2010 - 00:29 | Link to Comment Terminus C
Terminus C's picture

ba a aaaaah....

Mon, 12/13/2010 - 03:20 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

This will last forever. Everything is fine, all the stocks news sites told me so.

Mon, 12/13/2010 - 00:22 | Link to Comment bigredmachine
bigredmachine's picture

next dip bitch, next ones a doosy

Mon, 12/13/2010 - 00:25 | Link to Comment Gaston
Gaston's picture

You haven't seen overbought

Mon, 12/13/2010 - 02:19 | Link to Comment chopper read
chopper read's picture

 

You want overbought? You can't handle overbought! Son, we live in a world with support levels that must be guarded. Who's gonna do it? You? I have more responsibility than you can possibly fathom. You weep for short-sellers and curse The Fed. You don't know what I know. The Middle Class's death, while tragic, saved lives. And my existence, while grotesque to you, saves lives! But deep down, in places you don't like to talk about at parties, - - you want me on that printing press, you need me on that printing press. We use words like "rate cuts", "quantitative easing", "permanent open market operations". We use these words as the backbone of our existence. You use them as a punchline! I haven't the time nor inclination to explain myself - - to a man who needs my protection - - but questions the way in which i provide it. I'd rather you just thank me. either that, or pick up some cotton and green ink and start printing! Either way, I don't give a damn what you think you are entitled to!

 

Mon, 12/13/2010 - 02:33 | Link to Comment dukeness
dukeness's picture

Did you order the POMO?

DID YOU ORDER THE POMO?

 

(fucking awesome post, chop)

Tue, 12/14/2010 - 02:06 | Link to Comment chopper read
chopper read's picture

...you're goddamned right I did.  ;)

Mon, 12/13/2010 - 03:50 | Link to Comment scaleindependent
scaleindependent's picture

+ 600B

When is Nicholson reprising The Bernank's role?

Who is directing?

Mon, 12/13/2010 - 04:24 | Link to Comment sax
sax's picture

Post of the century!

Screencapped for historical references

Mon, 12/13/2010 - 08:21 | Link to Comment New_Meat
New_Meat's picture

+8041   - Ned

Mon, 12/13/2010 - 09:17 | Link to Comment Cursive
Cursive's picture

@chopper read

Lulz.  Thanks for this.

Mon, 12/13/2010 - 10:18 | Link to Comment Ese Pinche
Ese Pinche's picture

bacon wrapped radness!  +2012

Mon, 12/13/2010 - 00:26 | Link to Comment What_Me_Worry
What_Me_Worry's picture

They are going to have to add a new category soon.

Mon, 12/13/2010 - 00:28 | Link to Comment Wolf in the Wilds
Wolf in the Wilds's picture

Its not overbought.  Its not even a market anymore.  So have fun trying to use technicals to predict where it is going.  Best thing to do is.. DON'T PLAY IN A RIGGED GAME

Mon, 12/13/2010 - 02:34 | Link to Comment Bob Sponge
Bob Sponge's picture

"There are no markets anymore, just interventions." - Chris Powell

Mon, 12/13/2010 - 00:28 | Link to Comment RobotTrader
RobotTrader's picture

Here's an interesting chart:

Mon, 12/13/2010 - 00:31 | Link to Comment Boston
Boston's picture

Tyler,

Time for the picture of the guy on a ladder, on top of a picnic table, balanced on cinder blocks?

(from April 2010)

 

Mon, 12/13/2010 - 00:34 | Link to Comment TooBearish
TooBearish's picture

Meanwhile in bond land - meltdown.....

Mon, 12/13/2010 - 00:35 | Link to Comment bigredmachine
bigredmachine's picture

been reading since s+p at 1040, in aggregate, doomers

until lately. Honestly, you people are a pretty good contrarian

indicator. Lets see how it plays out. good luck. I am short 2x and 3x. no worries

of parabolic breakout. down bitches. 

Mon, 12/13/2010 - 00:36 | Link to Comment mcguire
mcguire's picture

1% in precious metals, lol!!!

Mon, 12/13/2010 - 00:41 | Link to Comment bigredmachine
bigredmachine's picture

you dont even realize how lucky you are.lol

Mon, 12/13/2010 - 01:56 | Link to Comment erik
erik's picture

how about you lob a few more condescending remarks around and back them up with zero substance

Mon, 12/13/2010 - 02:31 | Link to Comment Bob Sponge
Bob Sponge's picture

LOL exactly

Mon, 12/13/2010 - 01:00 | Link to Comment Everyman
Everyman's picture

Boy I am so glad to have a chart for this now.

I never knew the S&P was overvalued. <sarcasm off

Mon, 12/13/2010 - 01:01 | Link to Comment revenue_anticip...
revenue_anticipation_believer's picture

BUY on technicals...ignore the fundamentals...and BY THE WAY...didn't we all agree that there is no 'retail/dumb money' going into the market...its all just one computer to another...60%....right? no? yes?

don't buy Gold, buy Real Property living business concerns those that make it thru, with refinanced debt leverage @4% these businesses will grow at inflation + whatever they actually make ON A FIFO/LIFO accounting basis...

and buy the Investors Business Daily 'New America" stocks, when their technicals are good...and ignore p/e earnings based on the old normal...its the PIMCO new normal...

Creative Destruction, yes, there WILL be permanently dead real estate, Ghost Towns, and Ghost Factories, and dead business models, and

PERMANENT unemployement PRECISELY BECAUSE CERTAIN SKILLS ARE NOT NEEDED ANYMORE, NOT NOW, NOT EVER....and because with only 90% of the previous workforce, some efficiencies have come into play to making the sam amount of goods/services...

no need for more employees until the DIRECTION OF THE NEW NORMAL IS ESTABLISHED WELL ENOUGH TO INVEST 10-20 YEAR PLANT/EQUIPMENTand 'skilled employees'....no more 'welfare on the job'   'it will be welfare...just welfare, no pretense...'

i think that the 'dumb money' got burned badly what with the Bernacke Put...yes, and THOSE RETAIL TRADERS are probably out of the equities market....are NOT the bulls...indeed there are no 'retail traders' out there...

'Demand Destruction' for buying stocks is near maximum, actually, and there is NO way to assess the Net Present Value of the future income stream...so fundamentals are out...and the great thinning of the HERD of companies, real estate, wrongly directed capital...are being thinned out...yes, and MOST OF THOSE 'BARGAINS' are permanent junk...

Bombed Out Germany and Japan 1945 - all the old bulldozed burned, everythiing newly rebuilt...room for the new to grow...and IT DID, both Germany and Japan not only finished rebuilding within 10-15 years, but then CONTINUED, to SURPASS the USA in production costs and quality...

you buy TODAY only NEW, GROWING, LIVING investments...should be plenty of room for these to grow, once the junk assets are literally bulldozed...buildings, old mfg plants, wrongly placed Hotels...on and on

And YES, American Population is growing, only Country in the WEST....mexicans and other immigrants young with a long long worklife of SKILLED WORK ahead.

Mon, 12/13/2010 - 01:25 | Link to Comment What_Me_Worry
What_Me_Worry's picture

What exactly are "Real Property living business concerns"?

Is that real estate producing an income stream?  It sounds like a Japanese-botched translation.

So are you recommending service businesses, then?  As people's wages get squeezed by energy/food more and more they have less money for the service industry.  Obviously, there are very few examples left of businesses that actually produce anything.

Here, you are contradicting yourself and identify your problem:

"'Demand Destruction' for buying stocks is near maximum, actually, and there is NO way to assess the Net Present Value of the future income stream...so fundamentals are out...and the great thinning of the HERD of companies, real estate, wrongly directed capital...are being thinned out...yes, and MOST OF THOSE 'BARGAINS' are permanent junk..."

 


Mon, 12/13/2010 - 11:39 | Link to Comment Kobe Beef
Kobe Beef's picture

"Bombed Out Germany and Japan 1945 - all the old bulldozed burned..."

USA ain't there yet. I'll buy after it gets bombed & burned to the ground, thanks. Start with Washington, DC, please.

Cheers,
Beef

Mon, 12/13/2010 - 01:20 | Link to Comment Convolved Man
Convolved Man's picture

The market sentiment and weather conditions portend a tight sweater day on CNBC.

Mon, 12/13/2010 - 03:28 | Link to Comment StychoKiller
StychoKiller's picture

"Take away those sweaters and whatdya got?" -- Marilyn Monroe

Someone should turn up the heat in the studio! :>D

Mon, 12/13/2010 - 01:32 | Link to Comment Itsalie
Itsalie's picture

Bonds down stocks up, another same old week in Asia. Good christmas becoming great for the momos I guess?

Mon, 12/13/2010 - 02:01 | Link to Comment Paul Thomason
Paul Thomason's picture

Looks like a condom will be needed.

Mon, 12/13/2010 - 02:38 | Link to Comment HarryWanger
HarryWanger's picture

Throw out all the t/a charts and analysis, they don't apply now. This is pumped by the Fed and will continue for quite some time. To try and use t/a is silly. This is going much higher - common sense.

Mon, 12/13/2010 - 02:51 | Link to Comment Bob Sponge
Bob Sponge's picture

What will tell you it is time to sell?

Mon, 12/13/2010 - 04:35 | Link to Comment sax
sax's picture

When he starts harvesting potatoes from his back yard to eat

Mon, 12/13/2010 - 06:11 | Link to Comment SofaPapa
SofaPapa's picture

The "common sense" you are recommending here sounds to me (a relatively "outside" observer of the market) remarkably like the beginning of a hyper-inflationary psychological dynamic.  Hard to know based on your history if this is what you intended?

Mon, 12/13/2010 - 09:05 | Link to Comment razorthin
razorthin's picture

Actually, momentum indicators have been VERY helpful.

Mon, 12/13/2010 - 09:06 | Link to Comment Turd Ferguson
Turd Ferguson's picture

Harry and Turd in full agreement? Another sign of the Apocalypse has come to pass!

Mon, 12/13/2010 - 04:55 | Link to Comment Bitter Bob
Bitter Bob's picture

I don't know, seems the "dumb money" has been doing a lot better than this so-called "smart money" that's been trying to call the top ever since March 2009.

Mon, 12/13/2010 - 06:16 | Link to Comment hugovanderbubble
hugovanderbubble's picture

Stock markets fraud, farce...just permabullisment killing long/short traders.

Mon, 12/13/2010 - 07:55 | Link to Comment Trader7
Trader7's picture

   I'm still seeing orderly patterns on charts. Maybe I've gone crazy.

Mon, 12/13/2010 - 08:11 | Link to Comment TexDenim
TexDenim's picture

"Expect momentum chasers and dumb money speculators to go apeshit and to buy anything and everything in sight on this latest observation."

Expect, my ass. That is what these bozos have been doing since August.

 

Mon, 12/13/2010 - 09:06 | Link to Comment Turd Ferguson
Turd Ferguson's picture

"We continue to hold about 1% of assets in precious metals, about 1% in foreign currencies, and about 2% in utility shares."

Good to see this genius is fully hedged.


Mon, 12/13/2010 - 10:04 | Link to Comment Hondo
Hondo's picture

The markets can stary this way as long as the FED keeps buying stocks through proxies.  The problem is when it ends it will end very badly and a great deal of wealth will again be destroyed.  Then the FED will again try and bail out the stupidity of investors and themselves with more.......until yes we will (are well on our way) to looking like Japan.

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