by John Galt
May 31, 2016 05:00 ET
As the “sell in May and go away” meme is now officially dead thanks to a Fed pump, dump, and hump the market back towards new highs on low volume, one must ask if the smart money knew what they were doing as they sold into every major rally to rid their portfolios of large blocks of stocks that are not participating in this so-called economic miracle rally promoted by the financial media.
Two things however stood out to this blogger in May which are both alarming and should cause everyone to take pause moving forward as the United States moves forward into a summer of great political uncertainty.
1. The Bellwethers Ain’t Ringing
Apple failed to breech the 50 day moving average but remains a pathetically weak equity which advanced on extremely light average daily volume after hitting its current low price for 2016:
Goldman Sachs has barely broken above the 50 DMA but did it with lighter volume and no real conviction:
2. The S&P 500 is Over Valued Based on Other Metrics Also
Marketwatch had this fascinating story on Thursday May 27th:
This excerpt from the story linked above tells it all:
The price-to-sales ratio divides a company’s stock price by revenues. The price-to-earnings ratio divides the price by earnings.
The median price-to-sales ratio on S&P 500 SPX, +0.43% —or the P/S of the 250th stock on the index—is at 2.2, according to Ned Davis Research, above the 2007 and 2000 levels, when stocks were arguably in bubble territory.
The median P/S at those levels suggest that, unlike the bubble of 2000, when tech stocks led the price appreciation, the vast majority of large-cap stocks are now too expensive.
One of the reasons for a rise in the P/S ratios is declining revenue over the past three quarters as prices climbed to near record levels.
“On revenue basis, U.S. stocks are as expensive as they have ever been. But it’s not the only metric. They are expensive if you look at cyclically-adjusted or Shiller price-to-earnings ratios,” said Meb Faber, co-founder and chief investment officer at Cambria Investment Management.
Shiller PE, which is price-to-earnings ratio based on average inflation-adjusted earnings from the previous 10 years, is at 26.2, its highest level since 2007. The Shiller PE reached that level in 2014 and has largely stayed there.
Translation for the average soul: The Fed has created another massive financial bubble and will do whatever it takes to keep it inflated until someone in the political arena will take the responsibility and help create a hyperinflationary solution to the mega-debt mega-death dilemma facing the Keynesian theorists who are destroying American capitalism.
This chart from the article above reflects why anyone sane should be concerned:
Just remember what everyone on the MSM financial networks keeps repeating:
It’s not like 2000, it’s different from 2007-2008, and life will be awesome at Dow 20,000.
Thankfully you still have June and July to sell also.