The ability of the S&P 500 to close well above the May 2015 highs has not really diminished the debate over the market's future. The somewhat surreal Republican Convention that seemed to contradict decades of past policy did not seem to impact the stock market.
The opinion of the fundamental analysts has seen little change despite the new highs as they continue to believe they are not justified by their analysis. A few of the bears have converted to the bullish camp but most have not as the majority continue to argue why the market must be forming a major top.
The individual investor according to AAII was a bit less bullish last week as the bullish% dropped to 35.4% which is still well below the 40% level. The bearish% rose to 26.7%. As of July 19th Investor Intelligence reported that 54.4% of financial newsletter writers were bullish with only 23.3% bearish. Historically the bullish% has risen to well over 60% at a market top while the bearish % has been below 15%.
tallest
One of the more interesting arguments for why the market must be topping out is based on the observation that there is a surge in the construction of tallest buildings prior to a major recession or market top. I found this chart, which chronicles these observations since 1900, quite interesting. New tallest towers are under construction in Dubai, Shanghai and San Francisco.
The frustration expressed by some Wall Street professionals has its roots early in the year as advisors, like the Royal Bank of Scotland (RBS), advised their clients to sell everything. The recent data on institutional cash levels also suggests that many managers have missed this rally.
It is not surprising that many mutual funds have performed poorly in 2016 and that many clients are not very happy. Therefore any panic on Wall Street maybe based on the fear of further redemptions and a loss of business if managers continue to lag their benchmarks in the 3rd quarter.
Many feel that the recent surge to new highs in the S&P 500 is a fake out while others are convinced that the completion of the two-year trading range in the S&P 500 means that the market can go higher. Instead of just looking only at prices I suggest that investors look at the breakout in terms of the market internals.
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