In addition to our recent discussion of the macro-economic data in the US rolling over [8], and the epic proportions of net risk-taking longs [9], Credit Suisse outlines ten further indications that equities might be due for a 'consolidation'. Translating from sell-side research gobbledygook into reality, equity bulls are merely demonstrating the traditional phases of momentum-inspired euphoria in the face of ongoing fundamental contraction (not to mention a decline in consumption and marginal US purchasing power) - and earnings expectations, US fiscal tightening, and a modest rise in deficit-increasing real bond yields will not help.
Via Credit Suisse:
1) Global risk appetite is extended
Wilmot’s global risk appetite has risen to 1-sigma (i.e. standard deviation) above its norm, while our equity sector risk appetite is now 0.4-sigma above average levels. Only a month ago, equity sector risk appetite was well below normal levels.
[10]
2) Hedge funds’ net long positions are now at the highest level since July 2011 and if anything is more optimistic than sentiment-as proxied by the bull/bear ratio.
[11]
3) Equity sentiment indicators are close to a two-year high
Our equity sentiment indicator is close to a two-year high, mainly driven by slope of implied volatility skew (1.1-sigma above norm), inflows into equity funds (0.5-sigma), and bullish sentiment (0.6-sigma).
[12]
4) The percentage of NYSE stocks trading above their 10-week moving average has risen to above 80%, the top end of its historical range;
[13]
5) There has been a slight slowdown in corporate net buying (though, admittedly, there is a seasonal element to this indicator);
[14]
6) Insider (i.e. directors’) net selling remains elevated;
[15]
7) Higher beta areas in the market are a little overbought
Cyclicals have rallied strongly relative to defensives, especially in the light of the fact that there has, so far, been only a limited improvement in global economic momentum.
[16]
But apart from all that - sure, fill your boots...