Multiple Warning Signs Of Unhealthy Market

Cutout paper illustration representing scheme and Stocks inscription

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The stock market is not healthy, nor is this action normal. Lately, we have seen cyclical stocks in the ‘real economy’ and growth tech stocks take turns going up. Instead of one group winning the arm wrestling battle, both have won. Taking a wider approach, the US market is defying gravity compared to the rest of the world. It might be time to start diversifying out of America. The MSCI all country world index excluding America is still below its 2007 high. That was back when emerging markets were leading the charge. Over half of global stocks (1573 out of 3042) are more than 20% off their record high. This is while the S&P 500 and the Russell 2000 soar to record after record. There are very few stocks in the US market that aren’t rallying higher.  

We have a plethora of stats that detail this amazing action. Most readers are likely exhausted by any negative information because it hasn’t mattered. However, you must keep in mind that it takes months for bull runs to end. They only end after every single option has been exhausted. That’s different from bear markets which end quicker. Of course, not every crash is as quick as the one in March 2020. As crazy as it might sound to many new US investors, history shows that, aside from this past year, after crashes it takes years or even decades to hit a new high.

The Details Of The Craziness

The AAII investor survey worked well for investors last year as a contrarian signal. It had the longest streak of greater bears than bulls ever following the bottom in March. Now, it’s showing the opposite signal. The percentage of bulls in the week of April 7th rose from 45.8% to 56.9% which is the highest reading since January 2018 which was the cycle peak. It’s amazing that the AAII survey never made a new high in the past few months considering all the retail activity in stocks. That’s because these new investors aren’t included in the AAII survey.

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Disclaimer: The content in this article is for general informational and entertainment purposes only and should not be construed as financial advice. You agree that any decision you make will be ...

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