The stock market is overbought. The bears have giv
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Posted On: 05/03/2017 1:24:36 PM
The stock market is overbought. The bears have given up, and the dumb money is back.
Multiple metrics point to an expensive S&P 500. Judging by the drop in short interest and the gap down in the volatility index, the bears have given up.
On top of this, and right on cue, mom-and-pop retail investors are back. Charles Schwab reported that new accounts grew 43% in the last quarter. New investors said, “Hey, I use Netflix, Amazon, and Google — I can make money, too.”
This is the nature of stock markets. The dumb money buys at the top and sells at the bottom. When I was pounding the table and recommending stocks in 2009, few people wanted to hear it. When I said buy oceanfront condos in 2011, it was crickets. When oil was trading near $100 two years ago and I said it was going to $33, I was laughed at.
The market is going to crash; it always does. That said, it won't happen overnight. It has to suck in all of the greater fools — those who have forgotten 2000 and 2009 or weren't old enough to have invested at that time.
Overvaluation, coupled with new money, is the classic setup for a blow-off top.
Multiple metrics point to an expensive S&P 500. Judging by the drop in short interest and the gap down in the volatility index, the bears have given up.
On top of this, and right on cue, mom-and-pop retail investors are back. Charles Schwab reported that new accounts grew 43% in the last quarter. New investors said, “Hey, I use Netflix, Amazon, and Google — I can make money, too.”
This is the nature of stock markets. The dumb money buys at the top and sells at the bottom. When I was pounding the table and recommending stocks in 2009, few people wanted to hear it. When I said buy oceanfront condos in 2011, it was crickets. When oil was trading near $100 two years ago and I said it was going to $33, I was laughed at.
The market is going to crash; it always does. That said, it won't happen overnight. It has to suck in all of the greater fools — those who have forgotten 2000 and 2009 or weren't old enough to have invested at that time.
Overvaluation, coupled with new money, is the classic setup for a blow-off top.
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