With the S&P 500 hovering at its 200-day moving-average critical technical support and down for the 4th week of the last 6 (including the first quarterly loss in over two years), signs of stress are cropping up across all asset classes as Leuthold Weeden Capital’s Jim Paulsen exposes with his “Markets Message Indicator.”
As Bloomberg reports, the index, which tracks five different data points: how the stock market is performing relative to the bond market, cyclical stocks relative to defensive stocks, corporate bond spreads, the copper-to-gold price ratio, and a U.S. dollar index – with the goal of being a proxy for broad market stress.
“Perhaps the Markets Message Indicator peak in January will prove only temporary. However, its current warning comes when the indicator is near the peaks of 2000 and 2007,” Paulsen wrote in a note to clients this week.
“That is, it suggests investor confidence and aggressiveness ‘across all financial markets’ is nearly as pronounced today as it was at the last two major stock market tops.”
What is perhaps most worrisome is the recent “chaos” in the stock markets has barely made a dent in the level of excessive exuberance based on this index.
“Historically, this indicator has not been infallible, but its periodic cautionary advice has been extraordinary since at least 2000,” Paulsen wrote.
“At a minimum, equity investors should not limit their attention simply to the struggles and messages coming from the stock market. Rather, chatter from all financial markets should be considered and currently they are jointly whispering to ‘proceed with caution!’”
Caution indeed.
via RSS https://ift.tt/2H6Pm8g Tyler Durden