This bearish market indicator just hit an all-time high
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A key market sentiment indicator just hit “mania” level…
Zero Hedge reports Deutsche Bank’s “market emotion indicator” posted an all-time high.
[The indicator tracks the relationship between the S&P 500’s price-to-earnings (P/E) (share price divided by earnings per share) ratio and the volatility index (or “VIX”). The higher the difference between the two measures, the more likely a market correction is imminent.]
For the last 18 months, the indicator has rested in the “complacency” category (1.3) overall. But on May 21, the indicator spiked to 1.49. It’s an all-time high. The last time the indicator hit these levels was late 2007… right before the financial crisis crashed the markets.
Regular Daily readers know emotional extremes often lead to market reversals.
Picture a crowded fishing boat. Everything is fine as long as the anglers stay spread out all along the rails. But once everyone crowds onto one side… the boat flips over. Everyone winds up soaked.
Right now, Deutsche Bank’s indicator shows all the market’s “fishermen” crowded onto the bullish side of the boat. Don’t be surprised to see a downside reversal from here.
We can’t know this for certain. But PBRG subscribers are prepared for all market conditions. If you haven’t done so yet, read our 2015 Asset Allocation Guide. Then, read and employ the Palm Beach Three-Legged Stool of Safety right now.
These tools cap our downside risk… while maintaining plenty of “dry powder” (cash). We’ll use it to scoop up great deals on outstanding businesses when the next correction comes. Be prepared.