Daily Stock Market Update – January 19th, 2017
State of the Market Address:
- The Dow has been stuck in a 300 point trading range (19,999-19,700) since about December 12th of 2016. Either distributing at the top or consolidating.
- Shiller's Adjusted S&P P/E ratio is at 28.15. Arguably the second highest level in history (if we adjust for 2000 distortions) and right behind 1929 top at 29.55.
- RSI at 66.63 Remains at overbough levels, but slowly declining.
- Prior years corrections terminated at around 200 day moving average. Located at around 17,000 today.
- Short-term MACD is beginning to roll over.
- Stochastics remain at 93.43 and slowly declining. Extremely overbought level associated with prior market peaks.
- Last weeks CTO Reports suggest that commercials (smart money) are shifting their positioning to net short. For instance, the Dow is 5X, the S&P is at 2X and the Nasdaq is at 4X short. That is a significant short position against the market.
- Demand for VIX has spiked. Last week, investors have purchased 250,000 VIX call options with a strike price at 21, and another 100,000 with the strike at 22.
In summary: For the time being the market remains in a clear bull trend. Yet, a number of indicators suggest the market might experience a substantial correction ahead. The market remains at extreme valuation levels and severely overbought. Plus, the "smart money" is positioning for some sort of a sell-off.
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