Technically Speaking: Investors Go “All-In” Without A Net

We have recently written a couple of posts about the “exuberance” that has invaded the market since the election. Such is often seen near short- to intermediate-term peaks in markets as investors go “all-in” without a net.

It was on December 5th, 1996, during a televised speech, that Fed Chairman Alan Greenspan stated:

“Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”

It is an interesting point that the U.S. has sustained low rates of inflation combined with monetary and fiscal stimulus, which have lowered risk premiums, leading to an inflation of asset prices.

(Click on image to enlarge)

Investors Go "All-In" Without Net, Technically Speaking: Investors Go “All-In” Without A Net

Unfortunately, the knock off effects has been lower rates of profitability and economic growth. As shown, corporate profits have completely detached from both economic growth and corporate profitability. The last two times such occurred, the outcome was not terrific.

(Click on image to enlarge)

Investors Go "All-In" Without Net, Technically Speaking: Investors Go “All-In” Without A Net

Exuberance Abounds

Over the last two weeks, we have noted the more “exuberant levels” of sentiment from investors since the election. As stated in “Bulls Go Ballistic:”

“Our composite ‘fear/greed’ indicator, which primarily comprises investor positioning, shows much of the same as ‘bullish sentiment’ pushes back to extremes.”

Chart updated through last Friday.

(Click on image to enlarge)

Investors Go "All-In" Without Net, Technically Speaking: Investors Go “All-In” Without A Net

Importantly, investors are once again positioning themselves into equity “risk” at a rather alarming rate, with confidence surging higher. The 4-panel chart below shows investors have piled into equity funds, have a high level of confidence about the future, and complete evaporation of “short-interest” in the market. (Charts courtesy of The DailyShot)

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