Does the bull market resume？
Longer-Term Reservations: here’s the latest update to that margin debt chart I flagged a few weeks ago — the risk signal has now intensified because following the move into the redzone it has now turned down off the high.
That’s the thing, even if you get a trading rally or some short-term oversold indicators, we still have facts like this looming in the background.
$S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $E-mini S&P 500 - main 2506(ESmain)$
Similarly, the composite valuation indicator (combines: PE ratios, equity risk premia, price-based mean reversion factors) while down about 0.3 SD off the high — is still in the expensive zone, and points to higher than usual probability of a cyclical peak in the stockmarket.
As I have documented before, the most dangerous point in the market cycle is when indicators like these reach extreme highs and then turn down (the flipside being the best opportunities come when they collapse and turn up).
So while anything is possible, and maybe some series of positive surprises come along and offset these signals and the bull market resumes… in the meantime we have a set of facts that tell us we need to stay alert to downside risks, keep open minded to new information, but focused on risk management and to be prepared if things do deteriorate further into a classic cyclical downturn.
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