It's been a bull market since March 2009. Is now the time for a pullback?
Have investors gotten too complacent?
According to Business Insider, BTIG's Chief Global Strategist Dan Greenhaus notes that corporate bonds spreads above Treasury bonds are now as low as they were in 2007 (meaning more expensive), equity six-month target prices forecasted by many strategists have already been reached, and low-quality stocks are leading the market.
CNBC contributor Gina Sanchez, founder of Chantico Global, cites indicators like the AAII Sentiment Survey as an example of market complacency. Last week's survey sentiment was 55% bullish versus 18.5% bearish. In mid-August, it was 29% bullish versus 43% bearish.
Sanchez also sees other indicators that maybe the market may have reached a peak for the time being.
"If you look at where stock allocations are right now, it's up around 64%," says Sanchez. "It topped out at around 69% in 2007. So, you're looking at a pretty lofty set of expectations built in by the market."
Sanchez notes that the 11 rallies since 1950 averaged 53 months; the currently rally is now 57 months old. And, she believes that the market is in a third phase of its rally. Whereas the first phase (2009 – 2010) was started when stocks were cheap after the 2008 sell-off, and the second phase (2010 – 2011) came from earnings growth via cost-cutting, Sanchez sees this third phase as being fueled by low-cost financing which is about to end as interest rates move higher.
"I think we're probably due for some consolidation," says Sanchez."
CNBC contributor Andrew Busch, editor and publisher of The Busch Update, says the technicals are also indicating a correction could be near. He sees the market benchmark S&P 500 index as maintaining a upward trend channel about 150 points wide. The upper part of that channel is around the 1,860 mark, according to Busch, and the bottom end is 1,710, about 8% from the top. The market has made it a habit of testing the upper and lower boundaries of that channel as of late, notes Busch.
"In other words, at this level, I think you could sell it or at least lighten up here and expect some retracement," says Busch." If you really want to be aggressive you certainly sell it here and looking for 150 points to the downside. Again, that's only 8% or maybe even 10% if we get down there. I think it makes sense going into the end of the year and into January."
Busch also agrees with Sanchez that cheaper funding has helped fueled the recent market run but adds that it affected more than just earnings. "Companies have been buying back massive amounts of stock," says Busch. "That's been taking out a lot of the issuance so that's also a big support point under the market but that's why it'll go to 1,710 and hold there."
"These aren't bad levels to dump stocks right now."
To see the rest of the market analysis by Sanchez and Busch, watch the video above.
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