As of last week, the Market Climate for stocks remained characterized by unfavorable valuations, general strength on the basis of major indices, a few emerging divergences (one notable technical one being the non-confirmation between the Dow Industrials and Transports), and a fresh overbought condition resulting from the recent advance. On Friday, we closed the modest “anti-hedge” in index call options that we established on weakness a couple of weeks ago. Presently, the Strategic Growth Fund is tightly hedged.
At present, the market is strenuously overbought – enough to suggest a weak prospective return per unit of market risk. That's not to say that stocks can't ultimately advance further, but even if we observe a further advance, it would be very likely that stocks would return to or breach current levels on a relief of that overbought condition. That's another way of saying that near-term gains from these levels are unlikely to be sustained, which is why we closed that modest “anti hedge” last week.
Recently, incipient selling pressure has been met fairly quickly by demand from investors who feel that they have missed the advance. So what we're seeing in trading volume appears to be a move from strong hands selling on strength and questionable economic developments, toward weak hands buying on the slightest relief of an overbought rally in an overvalued market. This is not a dynamic that we should expect indefinitely, especially if we observe earnings disappointments or a lack of significant economic improvements. Insider selling versus buying, in total dollar terms, has been particularly brisk (though the sell/buy ratios based on share counts are less dramatic), so there is early evidence that corporate insiders realize that investor perceptions are somewhat rich.
Click to read the complete Hussman Weekly Market Comment.
At present, the market is strenuously overbought – enough to suggest a weak prospective return per unit of market risk. That's not to say that stocks can't ultimately advance further, but even if we observe a further advance, it would be very likely that stocks would return to or breach current levels on a relief of that overbought condition. That's another way of saying that near-term gains from these levels are unlikely to be sustained, which is why we closed that modest “anti hedge” last week.
Recently, incipient selling pressure has been met fairly quickly by demand from investors who feel that they have missed the advance. So what we're seeing in trading volume appears to be a move from strong hands selling on strength and questionable economic developments, toward weak hands buying on the slightest relief of an overbought rally in an overvalued market. This is not a dynamic that we should expect indefinitely, especially if we observe earnings disappointments or a lack of significant economic improvements. Insider selling versus buying, in total dollar terms, has been particularly brisk (though the sell/buy ratios based on share counts are less dramatic), so there is early evidence that corporate insiders realize that investor perceptions are somewhat rich.
Click to read the complete Hussman Weekly Market Comment.
