The S&P 500 is now approximately 12% above its 200-day moving average, and a gap this large was last seen back in March of 2000, just before the dot-com crash.
With regards to the Japanese market – well we are at historic extremes. Take a look at the 10 year chart below. You will see that the last time the index was stretched over 3000 points from its 40 week moving average was in 2006. The market promptly corrected by nearly 20% in just 7 weeks. Well, the index is in fact now over 3500 points higher – nearly 30% stretched from the 40 week ma – the highest it has been for over 24 years…
Those who say there is not a bubble here (and not in the making, actually made – signed, sealed and delivered) are just nuts or dumb (or both!).
In the words of Bill Gross, PIMCO supremo – “Never have investors reached so high in price for so low a return. Never have investors stooped so low for so much risk.”
We expect the Nikkei to return to 13800-14200 in the next couple weeks if not sooner.
With regards to the US markets, Morgan Stanley explains that among its equity long-short fund activity, the short activity (the net of shorts added and shorts covered) reached a minus-2 z-score indicating massive covering over the past 20 days. The last 3 times this occurred were April 2010 (S&P then fell 13% in 8 days), July 2011 (S&P then fell 19% in 23 days), and Oct 2011 (S&P then fell 10.5% in 20 days). See below
As for the divergence between the macro data and the S&P in recent months – if it were to converge, you’d be looking at an S&P 500 of 1450…
When the market breaks, there’ll be nowhere to run for cover and the clock is ticking past midnight now…
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