Markets are very overbought but the surprises are to the upside. RUT is noticeably lagging the other indices while holding above recent lows around 1545 level, until that breaks it can make a new high. Likely 2021 will be a bear because of 3 year engulfing phenomena that is rare and usually resolves in a trend change. The question is how much higher can stock indices go with several bearish divergences.
gghsusa
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I think we're very close to a pullback. I'm not sure if it'll be a major top but I'm expecting a nice drop soon.. I hope. I sold out of most of my longs and have been easing into longer term put options WAY out. I'd like to see a mild pullback but it's very likely to continue a bullish uptrend even with pullbacks for a while. I think I can make an argument for another MAJOR top (like Feb 2020) around May-June 2021 but it should not come without volatility.. The fed, central banks are destroying the free market but.. perhaps.. it hasn't been a free market in quite some time.
showerreport
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@gghsusa, in macroeconomics terms pullback should come either with riasing coronavirus cases as fall/winter comeback or with Biden (if he wins) raises taxes -higher taxes will pull out money from the streets and valuations will start falling-.If commodities start sky rocketing and inflation starts accelerating or the UST10 yiels starts spinking that would sound the alarms since rising yields will generate higher cost of financing for the companies which bring problems. Evidently the market is so high that evidently is pricing a low to none or even negative risk-premium of equities (that's why we are watching stronomical PE's in every major company). That's only a sign of IRRATIONAL EXUBERANCE.
SamSzulc
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@showerreport, Don't see any correlation to news events. If interpreting news was a guide to stock market direction then we would all be rich by simply following the leads of headlines. Actually, markets setup before news releases, patterns play out despite the news. More times than not a move associated with a news event gets reversed very quickly. Who the president is doesn't matter, Trump became president on a 7 year bull market run in progress that already had momentum on it's side despite that he takes credit for it is outright (BS!!!). When the inertia of momentum is lost it will be blamed on whoever is in power at the time whether it's Trump or Biden. Continuation of Trump's presidency will not extend a bull market, the inevitable will happen. The market is able to continue upwards irrationally because the there's plenty of money to transfer from shorts to longs despite we have depression level unemployment, homelessness, business closures, social unrest probably because of unemployment and despair over the future. The theory of alternation applies here, the market corrected in March by a Fibonacci .382 but ingrained into the psyche of most investors that we were in a bear market due to the severity of the decline, and more importantly history told them a depression means stocks crash multi-year. By the time most small investors start coming around that it was only a correction and pour money into online trading accounts a top of major degrees of trend is mature with inevitable consequences.
showerreport
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@SamSzulc, For instance, when de OPEC+ did not agree and on Friday oil was up yet on next Monday it open 30% down (that's was the starting of the market crumbling) or when the Fed, ECB, etc annouced the expansion in their balance sheet the downtrend reversed and started the uptrend? Really, no correlation? News related to liquidoty moves the market sicne higher liquidity means more uptrend and lower liquidity means downtrend in the market. Verify it REPO (FED was doing between 100 billions and 300 billions daily in March yo inject liquidity to banks plus the inyection to stimulus plans via expansion of its Balance Sheet). Either if you cut liquidity of the markets or you shutdown the economy you cut liquidity and without liquidity this is going dowtrend since the Market Cap check it for yourself.
By lowering rates in highly indebted context (for people, companies and countries) which only indicates exuberance the last stage of an economic cycle. Why? Because by lowering rates you modify the equation of costa of Equity and Debt and by that the cost of Capital (WACC). As a consequence Central Banks are telling the risk premium of equities are at least low/near zero or even negative because the real interest rate right now is in a negative stage. Plus the FED told as yesterday that it will start hiking rates after inflaiton goes above 2% which means that FED will tighten FAST and HARD the interest rate. That means that it will cut liquidity and make more expensive the cost of capital by hiking the equation of the cost of equities, debt and by that cost of capital. That will take the ecnomy to the swamp (yet remember that bank are starting to tighten the lending requirements). Market will continue to perform las long liquidity and rates remain low yet when saving fall to a critical place cycle will tighten faster (yet deleverage has started because your are watching chapter 11 every day)