by Lance Roberts
An old Wall Street adage says, "no one rings a bell at the top of the market."
Near peaks of market cycles, investors get swept up by the underlying exuberance. That exuberance breeds the "rationalization" that "this time is different."
How do you know the market is exuberant currently? Sentiment Trader had a great graphic on this last week.
"This type of market activity is an indication that markets have returned their 'enthusiasm' stage. Such is characterized by:
- High optimism
- Easy credit (too easy, with loose terms)
- A rush of initial and secondary offerings
- Risky stocks outperforming
- Stretched valuations"
Currently, we are seeing every box checked. Irrational exuberance from investors, easy credit with investors taking out personal loans to buy stocks, and risky stocks outperforming. The level of exuberance currently matches previous major market peaks, the only missing ingredient is a catalyst to start the reversal.
The biggest problem is that investors are crowded into a theatre with a single exit. When the selling starts, the exit will become very narrow, very fast.
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