“The most hated rally of all time.”
That is what I’ve been hearing lately, and no wonder so many are frustrated by missing out on the recent market upside. When a “wall of worry” is up and doubt has crept in, it is common to see the market move without the majority of the crowd. Of course, it cuts both ways. When the crowd is “all in” (like in 1999 and 2000), the markets are ripe to be hammered.
Yet, this current bull rally that started post-Brexit has technicians quite curious and fundamentalists dumbfounded. While the worry of high prices confounds the experts and the endless need to predict “the end” by some naysayers remains in place, price action continues to impress after the surge in July to new, all-time highs.
And that leads us to ask: Is the market overvalued? Why does price keep getting stronger when “it is not supposed to?”
We must always respect price action no matter what other indicators are telling us, even if volume levels are weak.
Recently, some indicators like breadth, volume, put/call ratio, money flow and the McClellan Oscillator were flashing warning signs. Indeed, the indices did correct a bit when Q2 earnings reports started to slow down, Fed Chair Janet Yellen spoke at the Jackson Hole Conference, and the August jobs report was released. No doubt it was prudent to wait out these events, but price barely budged at all.
Meanwhile, we have heard from plenty of “dragon slayers” like Bill Gross, George Soros, Stan Druckenmiller and other bloviators that this market cannot continue to rise. However, these are opinions – not fact – that are based on a “feeling” or even something more devious (if you have a book to sell, you’ll say pretty much anything to spike sales).
No matter what, keep your eye on price action. Even with a negative backdrop, it will continue to produce higher prices (from a historical perspective).
