A quick note on the stock market – as measured by Tom Demark’s trend exhaustion ‘Setup’ indicator, the S&P 500 is currently the most overbought in 40 years. The ‘Setup’ indicator is Demark’s basic measure of overbought/oversold. It compares the current market close to it’s close 4 periods (ie. days, weeks, or months) prior. On a monthly basis, we’ve now gone 27 consecutive months with the market selling above its closing level of 4 months prior.

This is an unusually significant and consistent upward move in price without much pullback. Nine months is a typical extreme for the market prior to a pullback. In a strong bull market the market may go 18 months in ‘Setup’ mode before falling. It has been since 1965 since the market went this long in overbought territory.

My view is the market is significantly overvalued, and now historically overbought. I’m not afraid to value markets and allocate my funds accordingly. The way I’m currently allocating between stocks/bonds/TIPS/REITS/Cash has put me almost entirely in cash and a few bond funds (my asset allocation can be followed on the ‘Portfolio’ page). When the markets offer better risk/reward I will move money into them.

Looking at history, when the S&P 500 went this long in overbought territory in 1965, it was the start of a decade-long bear market. The market could be bought in 1975 at the same price it sold 10 years earlier.

Here’s a look from my Trend Exhaustion spreadsheet: (available on the Research Offers page). You can evaluate the S&P 500 using the spreadsheet back to 1950.

Related, my favorite economist/market timer says the stock market has The Ingredients of a Market Crash.