Excerpted from John Hussman’s Weekly Market Comment,
“Keep it simple, stupid,” appears to be the critical message from John Hussman this week as he reminds market participants, once again in his detailed analytical style, that it’s not “different this time,” and in fact it’s considerably worse than it has ever been before…
“Chuck Prince famously said we have to dance until the music stops. Actually the music had stopped already when he said that.”
– George Soros
And Hussman warns the music just ended…
In recent days, the combination of extreme valuations and unfavorable market internals has been joined by acute dispersion in daily trading data that often occurs within a few days of pre-collapse peaks in the market. My opinion is that the music has already quietly faded out like the end of a pop song, in a wholly uneventful way, and that even a surprise push to further highs would be marginal.
Presently, the dispersion we observe in market internals suggests that investors are becoming increasingly selective; that their psychology has subtly shifted away from speculation, and toward risk-aversion. Our own measures shifted negative on February 2, 2018. More recently, the 2% advance of the S&P 500 Index beyond its late-January high has been accompanied by a sharp narrowing of participation and leadership across individual securities. The profound narrowing we observe in daily data, coupled with repeated leadership reversals within a fraction of a percent of the recent market highs, is what amplifies the likelihood that recent valuation extremes will have immediate and severe consequences, as they did after the 2000 and 2007 peaks.
Without making too much of daily data, the following chart shows how unusual is to see large leadership reversals as the market is setting new highs. The chart shows every instance in the past 25 years when the S&P 500 was within 0.6% of a 5-year high, yet the number of NYSE 52-week lows exceeded 4% of issues traded, and stood at least 50% above the corresponding number of new highs.
There’s a perception that bull markets have to go out with fireworks, like a spectacular finale of light and explosion that tells everyone in the most obvious way possible that the show is over, followed by the sound of parents everywhere calling to their children “Get in the van! Get in the van!” in order to beat the crowd. But that’s really only true of “V” tops like …read more