A bunch of indicators are warning of ‘a break in the stock market’


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Alarms are going off even with the stock market at an all-time
high.

The obvious ones include a degree of complacency illustrated
through low
volatility
 and the overall valuation of the stock
market.

But there are more reasons to be concerned below the surface.
Brad Lamensdorf, the portfolio manager of the
short-only Ranger Equity Bear ETF
, laid out some of the
more hidden warning signs that may be worth looking into.

“As the indexes continue to produce a series of higher highs,
subsurface conditions are painting an entirely different
picture,” Lamensdorf said in his July market timing
report
.

“The market capitalized indexes are dominated by names such as
Amazon, Microsoft and Johnson and Johnson. The good performance
of these large companies is masking the fact that many stocks,
including REITS and those in the retail sector, have already
entered bear market territory.”

Lamensdorf
warned
as early as March that the market was due for a
correction, generally defined as a 10% drop in stocks. The
benchmark SP 500 has gained nearly 11% this year. 

As uneasy as corrections make
investors, they’re
normal interruptions
of bull-market runs. And one right now
wouldn’t necessarily mark the end of the
current eight-year-old bull run. 

Lamensdorf points to the advancing/declining volume of equities
on the New York Stock Exchange and the Nasdaq as evidence that
the rally is due for a break. It’s an indicator of how much
pressure traders are placing to either buy or sell a stock, and
signals bullish or bearish sentiment. When advancing volume
exceeds declining volume on net, that’s bullish.  

The 21-day cumulative excess of advancing share volume over
declining share volume has hit four record highs since 2016. This
happened while the SP 500 hit all-time highs. 

But every new peak has been lower than the previous one, and it
shows that institutional buying has not been following the
indexes, Lamensdorf said. 

In addition to this, “an alarming percentage” of NYSE and Nasdaq
stocks are hitting 52-week lows even though the SP 500 has
marked several new highs.

“Recently there were more than 340 securities that sank to
52-week lows, the second highest level going back as far as
1965,” Lamensdorf said. “Similar spikes occurred in 1973 and
1999, both directly preceding significant corrections.”

He also points to Investors Intelligence’s weekly report on buy
and sell climaxes. A buy climax occurs when a stock makes a
12-month high, but closes the week with a loss. Buying climaxes
over the last 18 months have remained elevated, Lamensdorf said,
and it shows that buyer interest is topping out. 

Lamensdorf’s ETF is 50% short equities in anticipation of a
correction.

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