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Buygold–Good to know I have company-no, it’s not Goldmans or JPMs chief strategist…but I’ll take it

Posted by Richard640 @ 13:10 on January 12, 2020

“This Is Nuts” – Why One Asset Manager Reduced Risk On Friday

Authored by Lance Roberts via RealInvestmentAdvice.com,

Market Review & Update

When you sit down with your portfolio management team, and the first comment made is “this is nuts,” it’s probably time to think about your overall portfolio risk. On Friday, that was how the investment committee both started and ended – “this is nuts.”

We have been discussing the overbought, extended, and complacent market over the last couple of weeks, but on Friday, I tweeted out a couple of charts that illustrated the excess.

The first chart was comparing the Nasdaq to the S&P 500 index. Both are banded by 2-standard deviations bands of the 200-WEEK moving average. there are a couple of things which should jump out immediately:

The near-vertical price acceleration in the markets has been a historical hallmark of late-stage cycle advances, also known as a “melt up” phase.
When markets get more than 2-standard deviations above their long-term moving average, reversions to the mean have tended to follow shortly after that.

Currently, both of those conditions exist in the chart above. However, if it were only price acceleration, we would just be mildly concerned. However, investor complacency has also reached more extreme levels with PUT/CALL ratio now hitting historically high levels. (The put/call ratio is the ratio of “put options” being bought on the S&P 500 (theoretically to hedge risk) versus the number of “call” options purchased to “lever up” risk.)

Lastly, all of our indicators from momentum to relative strength are all suggesting risk substantially outweighs reward currently.

While none of this means the market will “crash,” it does suggest the risk/reward ratio is not in favor of the bulls short-term.

https://www.zerohedge.com/markets/nuts-why-one-asset-manager-reduced-risk-friday

OASIS FORUM Post by the Golden Rule. GoldTent Oasis is not responsible for content or accuracy of posts. DYODD.

Buygold–Good to know I have company-no, it’s not Goldmans or JPMs chief strategist…but I’ll take it

“This Is Nuts” – Why One Asset Manager Reduced Risk On Friday

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