Today, April 2nd, we saw the Dow Jones retest its all time high of 16,588. This market has been playing catch up to the S&P which has already made new recent highs. This is not a surprise at this point as we have come close recently, but today is when we pulled up to the exact high and sold off immediately.
By all standards, this market is very over valued and has many problems it will be facing very soon. I would not be surprised to see some follow through initially, but we will see in the days ahead.
The market is still well above a few key triggers that will change the long term momentum, which is all the way down at Dow 15,000. That is a lot of room to play with to keep the Bull Market alive. I would not become complacent and think it is a given that we will extend this rally into the Summer months as this Bull is getting a little old. We are now in the fifth year of this bull market run and is typical for a shift to take place.
Some may remember the saying, “Sell in May and go away”. This may not be a bad time to consider it if we hold on for the next month. In addition, on July 1st, a new law goes into effect and believe if left unchanged, it will have a massive effect on the country. On this date, U.S. House of Representatives Bill “H.R. 2847” will become law and is likely to have very large negative effects on our whole financial system, as I see it. I have a link here that explains it very well but it is a bit long. I found it very interesting and was able to read it all. The implications to me are going to have a big effect on the stock market.
We currently have the highest margin debt against the Stock Market ever, which is not a good sign. People have borrowed money to invest more in the market creating a huge leveraged environment. When you get extreme levels as we have it is yet another sign the market is in a dangerous condition because they will be very quick to sell and cover before they loose more than there account equity.
Above is a chart of first time home buyers that is slowly loosing steam. Home purchases account for a huge part of our growing economy and if this trend continues it will certainly put a drag on future growth.
Another disturbing development that I have noticed is that those who are buying homes whether it is investors or home owners is that we out here on the West Coast are seeing multiple offers well above the asking prices of the sellers. That is a strong sign things are getting overheated. This is what happened in 2006/2007 as the housing market crashed, just before the stock market crashed.
Valuation by all historical standards are way overvalued and it has been said that if the market were cut in half, a more fairly valued level would be in line historically.
Insiders are net sellers of their own company stock that are at levels seen at previous market tops. Not a good sign.
With low interest rates many may have a false sense of security believing that they have the Fed on their side and that is true to a point. All it would take is a big event in the Geo-political arena to trigger a shift as the domino’s for a super fast break short are in place but the major trigger is pretty far down at Dow 15,000. If that level is broke, I think we could see things unravel so fast, it could be staggering.
We are not there yet and so, as some like to say, “the trend is your friend” and that is true until he de-friends you; lol.
December 31st, 2013 was the last day of the month were we saw 16,588 on the Dow. With today’s move, we saw again the Dow Jones retest its all time high with the same price hit at 16,588. The current momentum may carry it higher for the short term but in the coming weeks a price reversal would be very normal considering some of above conditions. I would love to see the rally last the rest of the year, but think the odds favor something different.
For now we will interpret the action and not predict it, but these things are important to be aware of if you have long term retirement money invested. Its been a huge run up to this point. I wish you all the best.