The Weight of the Evidence Weighs Heavy on This Market
Several key indicators suggest a correction.
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Earlier this week, I showed you the Bank of America Bull/Bear Indicator. It was at 9.3. At the time, I said I don’t know if 9.3 or 9.6 is giddy, but I do know that when they ignore their own indicators, I consider that very complacent.
Now, folks are passing around another chart from Bank of America showing that Fund Managers have 3.2% of their assets in cash. Let me say right now that I am not proficient in this particular indicator, in that I wonder if it’s possible that cash can be low for a long time and it not matter.
However, I can read a chart, and I can see on this chart, that dates back nearly three decades, that this is the lowest level we’ve seen. I can see that, circa 2004, it dipped under 4%. The market went sideways for much of 2004. So, it mattered but not so much as to be outright bearish.
I can see it dipped under four percent in 2006, and we all know the market did not top out until 2007. In 2007, it dipped under four percent twice. In 2010 and 2011, it was under four percent, too. Same with 2013. So, I’m not sure what to make of the dips under four percent.
My point here is that low cash seems like sometimes it matters and sometimes it doesn’t. But when we combine the Bull/Bear Indicator, the low cash, the Consensus Inc bulls at 75%, the Investors Intelligence bull/bear ratio at 3.8, and the ten-day moving average of the put/call ratio back at .84, with the fact that the market is overbought, we know we should get a correction.
Yet keep in mind that the S&P and Nasdaq have gone sideways for three months now. Heck, the S&P even had a down month in December. It feels more like the market is just in constant group rotation. And I think the 493 need a correction.
Can the Mega Caps take back the mantle? Some will, some won’t. They have been diverging as a group since last summer, and I would expect that to continue.
We finally got an up day in the IGV. I did notice that no one fussed over the software stocks on Thursday, after fussing non-stop all week. Squint really hard, and you will see IGV even closed at the high of the day. I still think we get a bounce in software stocks.
Now compare that to the S&P Small Cap 600 Index, which closed smack on the low of the day. In fact, if you squint, you can see it has closed near the low of the day three of the last five trading days.
I mean, CNBC practically has a countdown clock telling us how many days the small caps have outperformed the large caps. So, you know we have to be close to a change.
