Technician
Short

Stocks Overstretched, Dangerous!

INDEX:DOWI   DOW Industrials
1271 10 27
Shiller PE Ratio is the price earnings ratio based on average inflation-adjusted earnings from the previous 10 years.

Shiller PE Ratio is above 26.00, which is near 2008 sub-prime bubble levels of around 27.
Its worth mentioning that the historical Median of the ratio is: 15.93
Min: 4.78 (Dec 1920)
Max: 44.20 (Dec 1999) Dotcom bubble

http://www.multpl.com/shiller-pe/

That indicates that stocks are extremely vulnerable(expensive), and a continued rise in yields amid FEd withdrawal of liquidity will pull the net below markets, and probably trigger strong bearish pressures on stocks .

Positioning:

Market in a very dangerous position, as complacency at extreme levels, which is clear on the Volatility index VIX             , which stands at historical lows near 10. Meantime stocks are on long term overbought territory as indicated by the stocks above 200-days SMA shown on the below indicator.

Margin debt at historical highs, but started finally to retreat, indicating leveraged positions being closed. That also indicates a very vulnerable market, as if these positions start to unwind(forced liquidation) an accelerated sell-off will be the result.
http://www.investopedia.com/terms/m/margin_debt.asp

Good luck, find me at https://twitter.com/thefxchannel
My live trades here https://telegram.me/joinchat/DgsnQ0FzifLqyI2YAoMqqQ
Stockman
2 years ago
Old chart...still waiting for breakdown, it's a giant megaphone....target 5500 by 2018
Reply
DougieHU
2 years ago
Great analysis! What's your assessment on $SPXU?
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jago25_98
2 years ago
i think it's going to keep grinding on for 6-12 months yet and maybe even up into a massive bubble rally before a even bigger crash. Looking to go short from around Christmas - can SPX500 be a good proxy for that?
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Technician TOP jago25_98
2 years ago
I believe your assumption is pretty valid, as we are a bit bubbly here, but still bubbles can go way beyond expectations. If there is a crash, shorting any index would work,I would look also for the extremely overvalued stock indices to short, Like Techs and Biotechs.
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jonatsgonats
2 years ago
Looks bullish to me. Already outside the resistance dash line means only more new highs coming! :D Sell the rip? Maybe the rip will be just an introduction to more new higher rips to come.
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Technician TOP jonatsgonats
2 years ago
Could be the case, but anyway there more to the downside than to the upside IMHO.
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I've been on the same view for a while. But you know, extremes can become even more extreme. The most important indicator is always the price itself. And so far that is bullish. However I think any instrument or market that can not show even a minor correction for such a long time, finally will likely suddenly collapse, with a very sharp price action. The only problem is that it is very difficult to get positionned or to trade a "black swan" type of reversal, as you can never be sure about timing. The only way to protect yourself, that at least you do not hold long equity positions.
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ChartArt
2 years ago
Look at where we are now! Still a major key pivotal trend line.
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ChartArt
2 years ago
"A potentially more accurate formulation of the Shiller CAPE, a formulation that conducts the calculation based on total return instead of price. On this formulation, the Shiller CAPE falls by around 10%"

"It’s important to note at the outset that the Shiller CAPE isn’t the only price-to-earnings (P/E) metric that is currently elevated. The good-old-fashioned trailing twelve month (TTM) P/E ratio is also elevated. "

http://www.philosophicaleconomics.com/2014/08/capehigh/
Reply
ChartArt ChartArt
2 years ago
And here is a very interesting corporate tax adjusted version of Shiller's CAPE:

"Nobel laureate Robert Shiller is famous for the cyclically adjusted price earnings ratio (Cape), which he used to predict the dotcom bubble. Alain Bokobza, of Société Générale, argues to the FT's John Authers that it now needs adjustment for tax changes."

http://video.ft.com/3646477989001/Fine-tuning-Shillers-Cape/Markets
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