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|Fundamentally, the equity market remains at a level that is historically over-valued. In each prior monthly newsletter, I have written at length about the extended levels of the key fundamental metrics which cause me to believe that we are at a high-risk level for a market correction. In this month’s newsletter, I will focus entirely on the technical measures of the equity market to help assess where we may be in terms of the timing of a stock market correction.
The summary view is that there are two dominant themes evident from the technical data:
1. Many technical indicators are at peak levels that have historically preceded a stock market downturn, and
2. Other indicators have already made the turn lower, indicating a near-term decline has a greater probability than has been the case in a very long time.
After you read and digest this newsletter, please feel free to email me with any questions you may have. The array of technical information may be a bit “wonky” and challenging to understand, so I have included charts to help sort through the numbers that are contained in the paragraphs.
My overall view is that equities are priced at levels that are not supported by the fundamentals. This valuation disconnect has not mattered during the past eighteen months, and the technical side has supported the rise in the equity indexes. Absent signs of fatigue in the technical indicators, or signs of actual underlying weakness within the many key technical variables, the market risk of a decline has been muted. That fact is changing, and the array of information set out below should be clear in providing the signs that the tide is turning and that the recent alignment of market fundamentals and market technical indicators are exposing a great level of risk that a material decline in market prices is not far off.
With this preamble, I wish you all well and prescribe a heavy dose of coffee.