In the past year, we have seen President Trump use the stock market as a measuring stick for his success, something we don’t typically see from presidents, mostly because if you own it when it’s going up, then you own it when it’s going down, something most presidents do not want to do. However, as we all know Trump is quite unconventional, so it is not a huge surprise he would do something others would not.
However, over the weekend I saw several different Congressmen comment on the stock market, using it as a benchmark of their success in 2017. These were not Congressmen new to the job; they have all been around for quite some time, so it struck me that this is a sign of complacency.
These guys have all been around long enough to know markets go up and down (or they used to!) and that’s why you don’t attach your performance to the stock market. Yet they did. And I take it as a sign that they have become so complacent market-wise, that they have joined a growing chorus of folks who don’t seem to believe the market can go down.
Even the American Association of Individual Investors (AAII) have finally joined the complacent/too bullish crowd. Last week saw 52.7% bulls, the most since November/December 2014. But it was the lack of bears that struck me. There were the fewest number of bears since 2015. Noted on the chart below are the two times we saw so few bears back in 2015
We already know that the Consensus Inc Bulls at 78% are the highest since December 2013. The Market Vane Bulls are 70%. The Investors Intelligence bulls have been over 60% for the longest stretch in their 50-year history. In addition, the Citibank Panic/Euphoria Model has slipped into Euphoria, which according to Citi means there is a 70% chance the market trades lower in the next 12 months.
All of this arrives as we reach an overbought condition on the short-term Oscillator as well as the more intermediate term 30-day moving average of the net of the advance/decline line.
Another sign that we are overbought on an intermediate term basis is that the Volume Indicator is now at 56%.
The McClellan Summation Index is still rising, since breadth has been positive for so much of the last month. What’s really odd is that it will take a net negative of -300 advancers minus decliners to halt the current (lethargic) rise. Considering how strong breadth has been, I would have thought there would be more of a cushion here.
I am sure many will be focused on the fact that the S&P 500 broke this uptrend line late last week.
Prior to my time off last week, I had said I thought we’d see a pick-up in volatility as we headed into 2018, and I still believe that will be the case. I have made the case in recent months that the VIX has trouble staying under 10 for extended periods of time. In the last week it has moved from 9 to 11, closing on Friday a smidge over 11.
What I see on the chart is that in the last six months, when it closes over 11, it typically goes on to get jumpy not long after. So, I’ll stick with my view that we’ll see a pick-up in volatility. Oh, and those Congressmen who are measuring their successes with the stock market? My guess is we won’t hear much more of that sort of chatter if volatility should return.