07.12.2020 – Special Report. Applause, applause: US indices set new records last week. They will think we are spoilsports, but we must once again send out a warning: Please remain cautious. Because if some experts have their way, a sell-out is now inevitable.
The 100% chance of correction
The Citibank recently put the matter in a nutshell: the in-house panic euphoria indicator has reached its highest level since the peak in the dotcom bubble, according to chief strategist Tobias Levkovich. The index measures, for example, the indebtedness in securities trading, i.e. margin loans; options trading; or bullishness in newsletters. And then the analyst concluded: “Current euphoric readings signal a 100% probability of losing money in the coming 12 months if we study historical patterns – indeed, we saw such levels back in early September as well right before a selloff in stocks.
Code Red from Bank of America
ZeroHedge noted that a record $115 billion has been channelled into equities in the past four weeks. And at the same time a record $9 billion out of gold. So risk is in high demand on the stock market. Chief Investment Officer Michael Hartnett of Bank of America assisted, there have been several “Greatest Of All Time” (GOAT) events in the past ten months: Pandemic/crash/lockdown/recession. The biggest bear market of all time. The biggest Wall Street rally of all time.
Now the BoA sent out a “Code Red” level alarm. All important internal indicators gave a sell signal: the in-house Bull & Bear Indicator jumped from a high 4.7 to an extreme 5.8. The cash balance of investors is now only 4.1 percent. The flow rule, which measures the inflow of capital, only shows a four-week inflow of 1.5 percent of all assets under management. In other words: the supply of capital is apparently drying up. The low market breadth also triggered a sell signal.
Politicians set their sights on Big Tech
Speaking of market breadth: Big Tech is obviously about to come under pressure. According to a report on CNBC, Facebook must be prepared for a monopoly lawsuit from 40 states. If this ends in a smashup, the shockwaves are likely to shake up the other big tech titles as well. Especially since the “Wall Street Journal” also reported that Google and Facebook are being bombarded with antitrust lawsuits by both states and the central government. But let’s wait and see: It is not for nothing that the oligarchs from Silicon Valley have been busy donating to Joe Biden.>
Overbought market
Michael Wilson of Morgan Stanley also repeated his warning of a correction on Bloomberg TV. The stock market was simply overbought, the man who is considered the most accurate analyst on Wall Street said. One factor that many investors overlooked was the fact that Treasury yields continued to rise. In other words: smart money is saying goodbye to government bonds. And rising interest rates are a danger especially for high-tech stocks. In concrete terms: “The market is overbought and the market is probably a little bit overvalued quite frankly because interest rates are finally now starting to catch up.”
Chart gap in the Dow
We complement: The chart technique also sends out a warning signal. In the Dow Jones, there is a gap between around 29,500 and just under 29,000. Such gaps are normally closed. Our conclusion: On the one hand, it says “The trend is your friend. On the other hand, warnings are currently accumulating at an alarming rate. You should not ignore this. We wish you successful trades and investments!
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