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Stock Market Rally, Is There A Cloud In The Silver Lining?

Stock-Markets / Stock Market Valuations Aug 27, 2009 - 01:28 PM GMT

By: Charles_Maley

Stock-Markets

My brother Jim has been trading the markets for over thirty years. Yesterday, we got involved in a conversation about the markets and the stock market in particular. He always does a good amount of research to support his own trading decisions and since sharing observations is one of the reasons I started this blog, I thought we should at least be aware of these points.


According to Jims work:

  • The Market PE is historically overvalued. The Current PE is @ 17 on the S&P.
  • The Stock Market is overbought when measured by the number of stocks above their 50 day moving average lines.
  • Bullish Sentiment is high. The Daily Sentiment Index (DSI) hit 89%. This reading is the same as the Oct 2007 high.
  • Investors Intelligence, AAII registered 19% bears. This is the same reading as the time high reading.
  • The trading volume is poor. There is less volume on each push up.
  • Insiders are selling at 28 times the amount they are buying.
  • September is traditionally a tough seasonal month.  17 out of the last 20 years have been down.
  • Markets have rallied up over 50% off the bottom in 5 months. This is the farthest and fastest in history.
  • The NASDAQ 100 has retraced over 50% of the decline off the all time highs.
  • The SP has retraced 40% of the decline.
  • The Aug 24th high was not confirmed by the 24 day RSI and MACD reading creating a divergence.
  • The Shanghai index has dropped over 20% from the highs. This market bottomed before our markets and led the U.S rally up.
  • 25% of NYSE volume recently has been FNMA, Freddy Mac, and Citicorp, all low price stocks that the public buys. (speculation)
  • The volatility Index (VIX) hit a new low on 8/25 confirming the bullish sentiment readings. This is a signal of NO fear in the markets.
  • There was no bullish reaction to the Bernanke nomination and other improved economic news. Perhaps the tone is changing.

Charles Maley
www.viewpointsofacommoditytrader.com- Visit our trader's blog!
Charles has been in the financial arena since 1980. Charles is a Partner of Angus Jackson Partners, Inc. where he is currently building a track record trading the concepts that has taken thirty years to learn. He uses multiple trading systems to trade over 65 markets with multiple risk management strategies. More importantly he manages the programs in the “Real World”, adjusting for the surprises of inevitable change and random events. Charles keeps a Blog on the concepts, observations, and intuitions that can help all traders become better traders.


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