Monday, November 20, 2023

SPX, COMPQ: Market Cap to GDP

Not a lot to add to recent updates, so I'll add an interesting chart today:

The chart above is yet another argument against any kind of meaningful bull market developing against the backdrop of current valuations.  The last time market cap to GDP was this high, the market was boosted by rampant QE and government stimulus, which I believe most people agree (even bulls) fostered a bubble in equities.  Is the prevailing belief really that we're headed for another such bubble?  What evidence is there that the Fed intends to foster the environment necessary for such a bubble?  None that I can currently see. 

Chart-wise, no real change from recent updates, though I do want to stress that last update, I wasn't saying we were "for sure" in a c-wave rally, in fact I went out of my way to stress that we could very well not be.  I was simply pointing out that it was the best fit for the pattern at the micro level.  An interesting twist on that theme might be a WXY, wherein -- IF we are in a C-wave rally -- the next decline is the X wave, then we go on to form another ABC higher.

Anyway, it's too early to worry about that option, and I stand by my "not trading advice" from November 8, where I suggested bears might want to await an impulsive decline before getting involved with this market again.  As of right now, SPX is still in the melt-up channel:

As a reminder, the reasonable bull count (given that we know fundamentals probably don't support a major bull market) still looks something like this:

And as another reminder, the "bullish for a little while but ultimately bearish" count would still be represented by the black "or (2)" above, and the red trend line below:

So, as I said out the outset, not much to add.  Trade safe.

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