Be patient in bull market

Be patient in bull market

              Several major stock indexes such as S&P, DAX and FTSE had made a new historical high recently. It is due to global easing and growth reacceleration. However, many ask the question this moment “Are we close to bull market top?” My answer is No. Firstly, I express my view that US or the developed markets still is on the uptrend this year. Noteworthy, I am bearish in this moment intermediately and expect a pullback or correction is coming soon but it will bring an opportunity to take a long position. It is unwise to follow an over optimistic and stretched rally now.

              

               Figure 1: The latest NNAIM Exposure Index reaches 99.2 that is 99^th percentile. It reveals money managers are extremely optimistic towards stock market.

Source: Pension Partners

               Figure 2: AAll Sentiment (Bull-Bears) is close to optimistic level.

Source: Pension Partners

               Figure 3 and 4: Investor Intelligence Sentiment (Bull-Bears) also hit a extremely optimistic level which is 99^th percentile and the forward S&P return is disappointed.

Source: Pension Partners

               Figure 5: Percent of S&P member above 50 days moving average has a divergence to SPX that make a new high. Worsening breadth show the rally is losing momentum now.

Source: StockChart.com

               Figure 6: In average, the number of over 5% decline in S&P is roughly 2 times a year. Since the intermediate bottom in mid-Oct, market never has an over 5% pullback. I expect a pullback is coming soon because the rally had taken over 4 months to go.

Source: Bloomberg

                Figure 7: Conference Board LEI still is on the uptrend and 6 month Diffusion Index stay above warning level. Economy is unlikely to entre recession.

Source: Conference Board

                 Figure 8: High Yield Bond Spread improves at the beginning of 2015. Credit Market performance reflect its health.

Source: Bloomberg

                  Figure 9: NYSE AD line made a new high with SPX.

Source: StockChart.com

                   Figure 10: Percent of stock in S&P above 200 days moving average which is over 75% stay at a healthy level.

Source: StockChart.com

                    My takeaway is intermediate term bearish (1-3 month) but long term bullish (1 year) in stock market. Long term bullish factors includes expanding leading indicator, positive treasury yield spread, ample liquidity, healthy long term breadth indicators. However, I still am patient to a take a long position after pullback given a over optimistic and stretched rally recently.