Image can be found at: https://fm.cnbc.com/applications/cnbc.com/resources/img/editorial/2017/01/06/104204504-GettyImages-631018444.600x400.jpg?v=1484697202

Are the Bulls Destroying Their Own Market?

October 4, 2017
109 Shares 2,229 Views

After the quarter opened with gains, it became clear that the market would like to maintain its bullishness, at least for the near future. However, there are some questions about the stability of the bull market. The trouble is that there is a lot of hype surrounding the markets, and that may be their undoing.

Business Insider ran two articles over the past few days that explain this phenomenon. One discusses the overweight and over-traded stock market:

“Stock is 1.5x or more than its weight in the S&P 500 in the fund manager composite, and more than 35% of funds in the sample hold the stock.”

Such a massive overload has driven volume based growth rather than financially based growth. The danger of having this is that the stocks could continue to grow, but be priced several times higher than their true value. The bulls would essentially be running from solid base on which this recent market was built.

In their article, Business Insider points to several major companies such as Alphabet and Mastercard which are trading at a very high weight ratio.

Another point that gives this theory credibility is that the markets are at risk of a slide is a call made by Bank of America Merrill Lynch, also via Business Insider:

…the firm’s proprietary “Sell Side Indicator” — which monitors investor exuberance — is now nearly two standard deviations above its four-year average. BAML points out that it’s historically been a bearish signal when Wall Street gets extremely bullish.

Wall Street has been exhibiting these warning signs for the past few months. Two standard deviations means the market could be in store for a major correction in the coming times. Be sure to keep an eye on your investments and be sure to stay aware of any indicators that the markets could be coming down.

To read Business Insider’s article on Bank of America’s warning signs, click here.

To read Business Insider’s article on the 8 most overcrowded stocks, click here.

[grwebform url=”https://app.getresponse.com/view_webform_v2.js?u=BKTzq&webforms_id=14431602″ css=”on” center=”off” center_margin=”200″/]

 

You may be interested

Job Hiring is Picking Up as Employers and Consumers Gain Confidence
Economy
548 views
Economy
548 views

Job Hiring is Picking Up as Employers and Consumers Gain Confidence

Lamont J - March 29, 2021

The recent government stimulus for small and medium-sized businesses, personal stimulus checks, and declining Coronavirus cases, are all great news…

Fed Could Maintain 0% Interest Rate Until 2024
Economy
489 views
Economy
489 views

Fed Could Maintain 0% Interest Rate Until 2024

Adam R - March 26, 2021

The Federal Reserve is holding its target interest rate in a range of 0.00% - 0.25%, even while the economy…

Supply Constraints Could Slow the Home Market
Economy
555 views
Economy
555 views

Supply Constraints Could Slow the Home Market

Becky H - March 25, 2021

Low inventory has been a constant in the home market for more than a year. The supply of existing and…