This is one of the strangest things I’ve ever seen…

The stock market is rewarding the popular opinion.

The CBOE put/call ratio (CPC) closed below .80 every day last week. Traders were buying far more call options than put options. And, as we noted in last Monday’s essay, that sort of extreme call buying almost always leads to an immediate pullback in the broad stock market.

That’s because the stock market doesn’t usually play nice. It doesn’t make it easy to make money. And when so many traders rush over to one side of the boat, the stock market usually tips the boat over…

But that hasn’t happened (yet). The stock market has been pressing relentlessly higher. It’s making it seem so easy
to make money.

It’s gotten to the point that the financial television talking heads are ridiculing anyone who suggests being cautious – not that there are many folks left doing that.

Seriously… on Friday morning, as the stock market futures were exploding higher again, anchors on all three of the major financial networks resorted to mocking folks with a less-than-optimistic view of the market. It is quite rare to reach that level of hubris.

Granted… I’ve been skeptical of this rally for the past 100 points on the S&P 500. My forehead hurts from banging it so many times on my desk. And, I’ve taken a hit for being too quick to add short exposure to my portfolio.

But, I added some more short exposure to the market on Friday morning.

Technical conditions are just too overbought. Investor sentiment is just too bullish. And, when the talking heads on CNBC, Bloomberg, and Fox start making fun of folks who preach caution…

Well… that’s probably the best reason ever to be a little cautious.

There’s no way to know for sure when this current rally will finally exhaust itself. I thought it would have done so by now. But, I get the feeling the stock market will look a whole lot different by the end of this week than it did at the end of last week.

Best regards and good trading,

Jeff Clark

Reader Mailbag

Today in the mailbag, we hear from Market Minute subscriber, Kelly, as she responds to David’s comment about America’s spending which we featured in Friday’s issue

First, Jeff, THANK YOU for your service! You are helping us little guys get a little bigger financially in an educational, entertaining way. Thank you!

I am responding to David’s comment in this morning’s issue. His last paragraph states, “This might also go a long way towards explaining why the U.S. has trouble paying for its expenditures than it did some half-century ago. During America’s heyday, it and most other developed countries of the world, had much steeper progressive taxes than they do now.”

This shows extreme ignorance of the U.S.’s financial issues today. First, U.S. Treasury revenues are the HIGHEST EVER, so the problem is NOT insufficient income. The real issue can be very easily demonstrated by comparing federal expenditures of today with those in “America’s heyday,” as David puts it. You can look at the actual expenditures, expenditures as a percentage of GDP, expenditures per capita, or any other way you want to look at it. We are spending our way to financial insolvency. I wonder if David’s household finances reflect this same problem. Many U.S. households do. Thanks.

– Kelly

Thank you, as always, for your comments and responses. We look forward to reading them every day. Keep them coming at [email protected].