The Ten Charts Ignored By Bulls
In addition to our recent discussion of the macro-economic data in the US rolling over,
and the epic proportions of net risk-taking longs, 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.
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.
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).
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;
5) There has been a slight slowdown in corporate net buying (though,
admittedly,
there is a seasonal element to this indicator);
6) Insider (i.e. directors’) net selling remains elevated;
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.
But apart from all that - sure, fill your boots...
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