They say nobody rings a bell at the top of a bull market. But that's a lie.
The truth is… bells are ringing all the time. Yet no one listens.
Quasimodo is in the bell tower right now, and he's doing everything but peeing over the side. No one seems to care.
sentiment is more bullish than ever. The Volatility Index (the "VIX")
is displaying extreme investor complacency. The put/call ratio (another
sign of fear in the markets) closed last Friday at its lowest level in
three years. And speculative penny stocks, typically the last group to
move higher in a bull market, are bursting like popcorn on a hot stove.
"There's nothing to worry about," says one financial analyst after
another as they goad mom and pop investors into chasing stocks higher.
Meanwhile, long-term interest rates are creeping higher. The Fed is
actively monetizing the nation's debt. States and municipalities are
bordering on bankruptcy. And our elected officials continue to raise the
debt ceiling ever higher toward infinity.
Oh sure, there's nothing to worry about.
Among all the other bells that are clanging and trying to warn investors
of an impending correction, another one is ready to sound off…
The above chart shows the bullish percent index of the transportation
sector (BPTRAN). This chart measures the percentage of stocks in the
transportation average trading with bullish point-and-figure charts. In
short, it measures momentum, and it indicates when a sector is
overbought or oversold.
Typically, when a bullish percent index (BPI) rallies above 80, the
sector is overbought and vulnerable to a decline. Oversold conditions
occur when a BPI drops below 30.
Sell signals occur on the BPTRAN when the index reaches overbought
levels then declines below its 20-day moving average (DMA). The happened
last January and again last April. Both times preceded large
corrections in the stock market by just a few days.
BPTRAN is on the verge of triggering another sell signal. The index and
the 20-DMA have both been at 95 for the past two weeks. When the index
moves below the 20-DMA, another bell will ring on the stock market.
Is anyone listening?
Best regards and good trading,