Tyler Durden's picture

Last week, Citi's Tobias Levkovich raised numerous concerns about the state of exuberance and "disconcerting disconnects" that is our new normal market currently. In the week since, Citi's proprietary Panic/Euphoria model is sending a clear warning of substantial complacency - its most "euphoric" since 2008. This is worrisome, he notes, since there is an 80% probability of a market decline in the next 12 months based on the current reading.



The investment community’s mindset is widely monitored and investors anecdotally have become more bullish in conversations and meetings looking to an expected traditional late-year seasonal rally, despite a better than 20% move year-to-date.


Money flows of late have shown that the individual investor is coming back into equities. Mutual fund flows and exchange traded fund flows have turned more clearly positive recently, reflecting a real shift in people’s willingness to take on stock market risk. However, they are doing so after the S&P 500 has tacked on more than 1,000 points since the lows of March 2009. Moreover, the Value Line Arithmetic Index has quadrupled over the same time frame, suggesting that there is a bull chase going on.

The model historically has been a very respectable market performance indicator. The last time, Panic/Euphoria was in this area, which occurred in May, the market slid 3%-4% shortly thereafter. It is important to recognize that while euphoria readings have not been registered, there is still about an 80% probability of a market decline in the next 12 months based on the current reading.


Source: Citi

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spinone's picture

nothing matters but the Fed

macholatte's picture

80% probability of a market decline in the next 12 months based on the current reading.


Nothing quantified. Complete Drivel.

There is a 100% probability of a market decline (of 20 points) in the next 12 months based on the current reading.


Dear Infinity's picture

What will Benny B do when Bitcoin hits Parity with Gold? Could happen in the upcoming months.

I like www.ounce.me for comparing the metals to bitcoin and vice-versa, pretty eye opening

lordbyroniv's picture

Couldn't get the .com so you are now hawking your wares on a shitty a .me?


LOL !!!


.whatever's suck



Harbanger's picture

Does anyone know what specifically was the black swan event that caused the 2007-8 financial crisis?

Dear Infinity's picture

Capital Markets: The Modern Farce

a book by Ben Bernanke

I am Jobe's picture

Amerika is a Parasite and the Rest of the nations are Hosts. Now more borrowing is needing to keep the addiction going. Wait till ACA is full scale and Corporations shift the burden. 

adr's picture

There are always those reports of Shaman in India that learned how to survive on nothing but air.

I guess stock traders have learned to live on nothing but hope.

In America groups of people have figured out that they can just live off Walmart. Meet the wandering nomads that call Walmart home:

American Nomads

starman's picture

dejavue anyone? hedge accordingly !

Bearwagon's picture

Treja vue at least! If not Troika vue!

NOZZLE's picture

I recall being pretty non-euphoric in a sideways market beginning November of 2002 and watching it slowly, bit by bit turn around after that.  I mean you could feel a sense of people in business and manufacturing seeing activity.

I recall being in a pretty non-euphoric mood in November of 2007 and taking money off the table particularly since Nazi Pelosi took over in January of that year.

Uber Vandal's picture

I was talking to my neighbor today, and he mentioned that his stock advanced $5 in one day due to earnings trounced expectations.

I asked him if he thought that was sustainable, and he said where else can he put his money to get that kind of return when a bank CD pays 1% or much less.

He seemed totally confident that the market will not crash for a third time since 2000.

If other people feel the same way, the market can go up much further, and when it finally pops, I think that the world of the TV series the Walking Dead will look like "Happy Fun Land".

polo007's picture

According to BMO Capital Markets:


November 8, 2013

In Search of the Mythical Market Correction

Strong Market Performance Has Amplified Correction Chatter

Many clients we speak with are convinced that the market is on the verge of correction. Sure, the stocks have been on an impressive and almost uninterrupted run these past few months, but we believe performance patterns alone are not enough to justify directional market calls. Instead, investors should consider the macro and fundamental backdrop along with risk-taking levels to determine whether or not the performance is justified. From our perspective, the data simply do not support the correction talk and we remain committed to our optimistic market outlook through year-end and into 2014. As such, we believe those investors waiting to “buy on the dip” are likely to be disappointed.

Performance Patterns Have Followed the Script

Despite the fact that it has been over a year since the last major market pullback, recent performance patterns are not totally unprecedented. In fact, the current bull market has already produced as many 5%-10% and 10%+ pullbacks as the prior six bull markets dating back to 1970, on average. The main difference has been the duration between corrections, which has been roughly half the average since 1970 even with the latest correction free period. Therefore, the past year or so can be at least partially viewed as a reversion to the mean since more investors are beginning to accept this market for what we believe it is – the early to middle stages of a secular cycle that has at least five more years of life in it.

Macro Trends Contradict the Correction Talk…

The one thing that almost all market corrections during bull markets have in common is that they are usually triggered by a Fed rate hike or a spike in oil prices. In addition, high levels of confidence, expensive market valuation, and underperformance from Financials are also typically associated with bull market corrections. Fortunately, most of these conditions are nonexistent in the current environment making the probability of any sort of major market correction very low over the near term, in our view.

…As Does the Absence of Excessive Risk Taking

Excessive risk taking has been another common precursor to meaningful market pullbacks based on our experience. However, the risk measures we track suggest no indication of excessive risk-taking by investors.

disabledvet's picture

There is "peak bullshit" too. There is a "fool limit." That's why I don't understand why the call it the greater fool theory. "Theorem" is more like it. Once the banks take a pass on your debt (that's all tapering is...the Fed is saying No Mas) then we're all back to square one again. Sure...."we'll just get it from the Fed"...but who's the fool then? The bank that refuses to lend? Or the policy maker with no way to fund the program? (Let alone "bailout.") again I'm no expert but "economies" is not just some theory either.

999.9's picture

The last time there was this euphoria the market slid 3-4%. Wow that's a big crash! To recover my losses for this year shorting the market I need -10%. Ok bitchez?

dirtyfiles's picture

euphoria trade : buy high and sell higher using margin account

good lock

q99x2's picture

I'll place the 5 to 1 on the FED software. It has been proven to work time and again since they implemented it at the end of 2011.

Until the Central Bankers start paying the Washington D.C. politicians in BitCoin, BTFATH

AGoldhamster's picture

Me thinks the final highs or a double top in Indices will happen within next 1-2 weeks.

Possibly Nov.15h-Nov 23rd. +/- a week.

Then down couple of months into another debt cealing discussion = another show of Dem's fighting Rep's.

absente reo's picture

"..since there is an 80% probability of a market decline in the next 12 months based on the current reading..."


I think what most readers most want to see is 

"..since there is a 98% probability of a market decline in the next 5 days based on the current reading..."



Hagen's picture

Wow. Me too i am capable of making predictions like that: " 80% probability of a market decline in the next 12 months based on the current reading". It is completely ridiculous.

Hagen's picture

My prediction: markets will turn around in 11 days and 5 hours...