Entering Into 2013 - Part 2
Before I move forward into summarising the outlook for other asset classes, I would like to further go into the US equity market outlook. My personal opinion is that there is too much complacency right now and this is usually how markets top out... especially after a four year super run like we've experienced since March 2009. Let me put forward 16 sentiment indicators I track to explain why I do not want to be anywhere near equities right now. Since there is a lot of charts to cover, I will keep it all in point form. Furthermore, apologies in advance if any of the material overlaps from the previous posts.
Chart 1: Low volume is usually a sign of distribution
Source: Short Side Of LongChart 2: Low equity volatility is usually a sign of a top
- Low volume is usually a sign of distribution, where smart money is slowly selling into strength as retail money is buying. As long as the volatility is low, the media news is bullish and trend is upward - retail money is not spooked and keeps accumulating. In my opinion, distribution has been in progress since at least March 2012.
Source: Short Side Of Long
- VIX is once again in the so called "danger zone", which usually indicates a top is either at hand or near. But it is not just equity volatility that remains very low. Consider the following chart:
Chart 3: Low global volatility is usually a sign of complacencySource: Barry Ritholtz
Volatility is extremely low across all asset classes as investors hold high confidence that both the economy and financial markets will continue to deliver for quarters and years to come. JPMorgan’s G7 Volatility Index of currencies fell to a record low reading of 7 in late December. Furthermore, Merrill Lynch’s MOVE Index covering Treasuries fell almost 40 percent from its high last year....MUCH MORE
