Tax Reform in This Election Year: It's Not Likely
Walmart's New Health Food Push: Is It Too Hard to Swallow?
Some have noted the similarities between the recent run-up in U.S. share prices and the move that took place from March through July. But it's the differences that investors should really be concerned about.In both cases, powerful rallies kicked off following mid-month capitulation lows after investors fretted over the fallout from upheaval in credit markets. Each time, the S&P 500 index managed to tack on about 200 points, or 14%, pushing the benchmark index back towards its March 2000 highs.
Of course, the first run-up took four months to complete, while the latter occurred in less than half the time. Leaving aside the question of whether the latest move has been a case of "too far, too fast," other comparisons suggest the market's current technical position may, in fact, be more precarious than it was in July, when prices suddenly fell off a cliff.
For one thing, investors seem to be as or more exuberant now than they were back then, which is the kind of thing that makes most contrarians more than a bit nervous.
According to recent data from Investors Intelligence, 56.5% of newsletter editors are bullish, up from 52.3% in mid-July, while polls from the American Association of Individual Investors show that the "little guy" is even more upbeat, with the bulls numbering 51.81% vs. 43.64% last time.
Some technical indicators paint a similarly complacent picture. As of Friday, for example, the Chicago Board Option Exchange's composite put-call ratio was at 0.74, with a 10-day average of 0.88. Three months ago, the values were higher, at 0.93 and 0.89, respectively. Even the VIX index, or "fear gauge," which scored a far more dramatic rise in the late-summer selloff than it did in the spring, has managed to fall all the way back down to levels not far off those seen in mid-July.
Still, while investors are positive, some key market underpinnings are not. With an average daily volume of 1.35 billion shares, turnover during the latest rally has been more lackluster than the 1.48 billion-share pace seen during the earlier move, suggesting that buyers have not been as keen to put their money where their mouths are as they were before.
Moreover, the net change in a cumulative measure of advancing vs. declining issues has also lagged, with a recent total of 6,798 vs. 9,852 the last time around, according to data compiled by Bloomberg. Historically, waning market breadth has often been a warning sign that an uptrend does not have the staying power to push prices to much higher levels.
Taken together, the similarities and differences between the two rallies may be indicating just one thing: it'll soon be time for déjà vu all over again.
Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle.
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
