US Market dangerously overbought
08/06/2013

The US stock market has had such a powerful run, up 20% YTD, in 2013 that most market strategists have been left scrambling to catch up. But how much further can it run? The market is now running on fumes. Expect a 10-20% correction.

Online PR News – 06-August-2013 – Zurich – The US stock market has had such a powerful run, up 20% YTD, in 2013 that most market strategists have been left scrambling to catch up. But how much further can it run? According to Ulrich Krach, the chief investment officer of CLH Capital Partners in Zurich, Switzerland, the market is now running on fumes. Technical indicators, such as relative strength index, RSI, show a market heavily overbought. A reading over 70 is generally considered overbought. At present, monthly RSI is at 75, weekly RSI is at 71 and daily RSI is at 70. Also, institutions, called the “smart money”, have been heavy sellers, while it has been retail buying, called “the dumb money” that has supported the market. Also, commercial hedgers, which have a good track record of being on the wrong side of a trade, have turned negative on markets. With revenues and EPS, as well as most macroeconomic indicators, showing a very weak economy, it would not take much to turn negative. There is still a widespread belief that we will see a strong uptick in the economy in the near future. That has led to a dangerous expansion in P/E multiples. So far, all signs of a strong recovery are missing. If those expectations are not met, it is likely we will see P/E compression again. Also, normal risk appetite, as measured by copper, Australian dollar and emerging markets is decidedly missing. Most asset classes are showing a negative trend in 2013, with only US equities and rates spiking strongly. Expect to see a 10-20% correction, with the long-term uptrend still intact, says Mr. Krach.