If you ask me, this bull is looking long in the tooth. In fact, the two-year bull market on the NYSE was showing signs of aging even before the news from Japan broke.
Here are some of the clues I’ve detected in the past few weeks:
Fewer Stocks Participating on the Upside
In the fall of 2009, during the market’s explosive kickoff phase, more than 90% of NYSE common stocks climbed above their 50-day average price. In other words, just about everything was going up.
More recently, at the February top, fewer than 80% of individual Big Board issues were trending upward. With the market crack, this number plummeted to as low as 31% on March 16 (correction low).
A near-term bounce is under way. Even so, should the blue-chip indexes march to a new peak with only 70%–80% of the rank-and-file joining in, it would be a serious warning.
Valuations Getting Stretched
I’ve showed you the chart of the Q Ratio below before, which reveals that U.S. corporations are trading at a higher premium to the replacement value of their assets than at any time in the past 110 years (except for a brief period at the end of the Internet bubble).
Other value benchmarks are overextended, too. For example, despite a wave of dividend increases, the yield on the S&P 500 Index fell to a meager 1.86% in early March. That’s an eyelash away from the 1.76% dividend yield that prevailed at the major market top in October 2007. And we all know what happened next!
Insiders and Other Knowledgeable Investors Bailing Out
Corporate officers and directors know more about their companies’ business than any outside analyst. During one week in February, near the most recent interim market peak, insiders of NYSE- and ASE-listed firms placed 10.5 sell orders for every buy order in their companies’ shares. In my 30-odd years as an insider sleuth, I’ve never seen a figure that high.
I also note that Carl Icahn, an extremely savvy market operator, is returning all the money ($1.8 billion) public investors have entrusted to his hedge fund. In a remarkably frank letter on March 8, Icahn said: “I do not wish to be responsible to limited partners through another possible market crisis.”