Queue the Euphoria. Here comes the crash. - This is what a secular stock market top looks like

Queue the euphoria. The S&P500 is probably going to re-test 1595 this week, and if Friday’s Q1 GDP estimate is north of 3.0%, the S&P500 may even break 1600 for a few minutes. Crack open the champaign. It’s time to sell whatever’s left of your stocks and other risk assets to the same folks that bore the brunt of losses the last time things melted down.

Earnings season is not propelling the U.S. stock market higher. No macroeconomic data (anywhere) is propelling the U.S. stock market higher right now. What’s going on this week is a bounce off last Thursday’s short-term oversold market.  I tweeted the market was due for a bounce within a few minutes of last Thursday’s S&P500 trough.  How about them apples?

Don’t expect this party to last long. Here’s what I’ll be looking for to prove this point:

Next Tuesday afternoon will see the release of this week’s Advisor Sentiment report. Since you can fairly safely rely on advisor’s groupthink to be wrong when large proportions of them agree, I’ll be looking for the bulls/bear ratio to bounce fairly hard off last week’s 2.26, to something north of 2.75.  3.0 or higher would be downright euphoric, and fit the script. But readings that euphoric are very rare and  are normally only seen the week before or first week of earnings season. Sorry. This is week 3. There’s too much weak earnings reality going on right now to see a 3.0 bulls/bear ratio. I’ll take the 2.75 and be happy with it.   
Next Monday will see the release of this week’s insider buying and selling data. Expect the rats to resume jumping ship at a near panic pace of 6 or higher.
A decent GDP report will propel the VIX lower on stock market euphoria. Perhaps under 12 again.
I’ll also be looking to see what retail stock options traders are doing versus the institutional money.  A strong finish to this week will almost certainly lead to a wide divergence in put/call ratios in these two groups. Guess which group usually makes the right call?  Yup — not the retail options player. They’ll be busy buying expensive equity call options this week instead of the cheap put options.

Buy low, sell high.  What’s high right now?   What’s low right now?  There you go.  If only there were risk indicators that assembled all this stuff into something easy to use….

 

Hello horse. This is your water.