Latest Update Of The Long Term S&P 500 Chart Suggesting A Top Is In

Originally published by AxiTrader

The S&P 500 had its worst day in 2017 falling 1.24% overnight to close down 29.45 points at 2344.

That's the first fall of more than 1% in more than 100 days. And even though one day - like one swallow - doesn't necessarily herald a change of season there is every chance that we have seen an interim, perhaps long term high, in US and thus global stocks right now.

I say that with reference to a number of different drivers but especially when I look at my long term S&P 500 chart since the 2009 low at 666.

But before I get to that it's worth noting the convergence of two interesting - somewhat counter - pieces of research from Deutsche Bank (DE:DBKGn) and Bank of America Merrill Lynch (NYSE:BAC) in the past couple of days.

Chart

BAML reported that in their monthly survey of big global institutional investors that the net balance in favour of those who said they thought US stocks were overvalued was at its highest level since 2000. But the survey also showed that these same investors - on average - increased their bet in stocks this month.

As a behavioural guy that just screams "cognitive dissonance". It also reminds me of an analyst recently who upgraded their call on the S&P 500 for year's end because of momentum, NOT valuation. Now I'm a trader - so I like momentum, it makes me money, but that call reminded me of the Queensland based fund manager who in July last year said they were buying negative rates because others would take them off their hands at even lower negative rates.

Not such good timing - but it was a strong signal. Perhaps the cognitive dissonance above is as well.

Which brings me to the second piece of research that caught my eye.

Deutsche Bank's Torsten Slok shared a chart showing that markets are currently pricing less than a 10% (or they were) chance of a bear market over the next 12 months.

Business Insider reported that Slok wrote "despite enormous political uncertainty both in the US and Europe, stock markets continue to see very limited downside risks on the horizon with implied probabilities of a +20% correction in the S&P 500 at the lowest levels since 2008".

Chart

Now neither of these reads means stocks will collapse. But they fit nicely with traders who are buying at elevated PE levels in the hope of Trumponomics stimulatory impact and are thus what you might call reluctant bulls.

It also fits nicely with my long term look at the S&P 500.

Chart

Early this month, as the US bull market turned 8, I wrote a piece sharing the above chart which suggests that run could be near its end. And I followed that up with a note saying that 2350 was the level I was watching on the S&P 500. SO with the close at 2344 last night I'm on high alert that this fall could accelerate sharply to the downside.

But equally this is a very long term chart - 8 years in the making. So calling a top is in a sense ridiculous in any other manner than after the fact.

So I'll focus on the incremental moves and see what they build into. And with that in mind it's worth noting that in S&P CFD terms a garden variety 38.2% retracement of the election night low to the 2017 high for the index comes in at 2259.

Another 80 points below market.

Here's the chart

Chart

Have a great day's trading.