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Market Musical Chairs

Markets are at all time highs.  That includes not only US equities but also many foreign markets.  In my opinion, much of the rise can be attributed to loose monetary policy.  Although the US Federal Reserve halted active easing with the end of QE3, their $4 trillion balance sheet ensures a passive effect.  Furthermore, any slack resulting from the Fed’s recent “restraint” has been taken up by easy money policies from Europe to Asia.

The pertinent question is:  Has central bank intervention caused a mere distortion until markets get back to “normal” or has a bubble formed?

I don’t have an answer.  I’m concerned about the slowing growth of corporate profits and that forward S&P500 valuation is high at a multiple of 17.

There has also been a decided change in the market’s “personality”.  The below chart shows the duration of Investor’s Business Daily market status dating back to mid-2011.  Market status doesn’t directly indicate the direction of the market, it’s a measurement of technical sentiment.  Gone are the days when “uptrend” indicators lasted for extended periods of time (the high green bars).  Year-to-date the market has been in “uptrend under pressure” status 62% of the time.

While some may look at this as the market climbing a wall of worry, to me it appears more like a game of musical chairs.  With all the foreign money flowing into US equities, I wonder if it will be them left standing when the music stops.  In any case, the best strategy for playing musical chairs is to ensure that your backside is always near a seat.

I expect the volatility to continue.  As always, invest with caution.

IBD status count 150423


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