8 Unprecedented Extremes Indicate A Stock Market Bubble In Trouble

By: Elliott Wave International

This article was adapted from Robert Prechter's June 2015 Elliott Wave Theorist. For more charts and detailed commentary, analysis and forecasts from Prechter's latest issues, click here for the extended subscriber version of this report -- it's free.

It is amazing to read assertions from the Fed and others that the stock market is nowhere near being in a bubble. Several aspects of the financial environment are actually so extreme as to be unprecedented. Some indicate a bubble, and others a bubble in trouble.

Below are eight indicators we are watching closely, among others.

1) Record debt in U.S. dollars

Total dollar-denominated debt peaked at $52.7 trillion in early 2009. At the end of Q1 2015, it stands at $59 trillion, an unprecedented amount.

2) Margin Debt at All-Time Highs

Never have more trading-account owners owed so much money, and never have they had such a low level of available funds from which further to draw.

3) Stocks Are Overvalued (based on dividend yields)

The Dow's annual dividend payout has been less than 3% for 235 out of the past 246 months. Prior to the bull market that started in 1982, the longest duration under 3% was just one month, at the top in 1929.

4) Fund Managers Are Maxed Out

The percentage of cash in mutual funds has been below 4% for all but one of the past 70 months (a period of nearly six years). Prior to this time, the longest such duration was only nine months, a streak that ended in October 2007.

5) Stocks are at a Triple Extreme

Previous triple manias occurred in 1901/1906/1909 and 1965/1968/1972, and both led to severe bear markets. This one is even bigger and has lasted longer.

6) Stocks Rose on Low Volume for Six Straight Years

Such a thing has never occurred before -- one year, maybe, but not six.

7) Unprecedented Divergence Among Major Indexes

On May 20, we published an interim issue of The Elliott Wave Theorist to tell subscribers:

Today something amazing happened: The Dow Transports closed at a 6-month low on the same day that the S&P 500 made an all-time intraday high. I doubt this has ever happened before.

The Dow Theory non-confirmation between the Dow Industrials and Transports is now [more than] six months old. This big a divergence, for this long a time, is very bearish.

8) Advisor Bearishness at 38-Year Low (optimism near record high)

The 30-week moving average of the percentage of bears among stock market advisors is at a 38-year low. (Investors Intelligence data is inverted to show optimism.)

This article was adapted from Robert Prechter's June 2015 Elliott Wave Theorist. For more charts and detailed commentary, analysis and forecasts from Prechter's latest issues, click here for the extended subscriber version of this report -- it's free.

14 thoughts on “8 Unprecedented Extremes Indicate A Stock Market Bubble In Trouble

    1. I agree. We would probably have missed most of the rise if we worry about any of these charts.

  1. All this is true and has been true for a long time. But when the US market is the only game in town where else can you go to make your millions? Nothing lasts forever, but for the first time EVER, it truely was 'DIFFERENT THIS TIME' for US equities since Dow 14,000.

  2. Actually, we are living in a Bubble Age"which was started in after 80's or early 90's. Not only in US, but in so many countries world wide one after one Bubbles are forming, and one Bubble is managed by creating another Bubble.

    Just look EU Situation and Euro sustainability, Swiss Frank Shocks, China's Stock Market Crack down, Japan and Russia's Economy turmoil, every where we just found disaster and probability of even further disasters. This happened because every one had Turned Twisted and crushed Basic and Fundamental principles of Economics, or even simple tune of Wisdom, which tell us or indicates what can be done and what should must be avoided.

    Movement of Gold, Oil, some commodities, and Stocks clearly indicates the structural weakness of World Economy. Very saviour and harsh Currency War is on the card, which will be a major reason for further unsolvable complications, in this regards, far earlier too, I had given Warning in my older posts, and even right now too, I am much confident about critical and killing probable movements in Currency, it will be sudden, much sharper, with spiral spread across the Globe. Trader of any or either segment should must well aware and concentrate on the movement of Currencies.

  3. All related reasons and illustration as well probable out-come there of is quite interesting as well important. However, so called "Analysts", "Economists" and "Bureaucrats" can never study, not only that, right now they are not even ready to understand certain factors as any serious or affecting issues, because they are living simply in "Present" giving us only rosy picture in a complex and tricky words, so either they are foolish, and absolutely unable to consider future situation, or they are mischievous, hiding facts.

    Off course, we will find all these factors just from them, which will be presented by them as an explanation of fall, when Market will already collapsed in a multi fold manner.

  4. Seriously. Knock it off. Please.

    It's insulting to the intelligence of your readers to attach anything having to do with Prechter.

    Yeah, the guy who called for a dow collapse to 1,000 in 2010. Yes, 1,000.

    It was the exact same call he made in 1996, just rewarmed over.

    Just..... knock it off. Thanks.

  5. It begs the question: What good is technical analysis in manipulated markets? This is probably the main reason stocks continue to climb and brush aside fundamentals. One could be the greatest sports handicapper in the world; however, if the referees (SEC, CFTC et al) are all on the take and choose to look the other way, then no amount of pouring over facts, figures and historical charts will have any relevance in outcomes of any kind. Cheap money continues to fuel Equities up and the limitless supply of money of the FED to back the Treasury and bullion banks to continue the naked shorting of precious metals more than assures the nonsensical performance of all markets today. This is a 'command-and-control' economy and they will continue to perform at the behest of all the central planning behind them.

    If one wanted to pursue a career in Finance these days, they would be bettor suited if they studied Criminal Justice' instead to truly understand how these markets really work.

    Last one to the collapse is a rotten egg!!

  6. You mean higher REAL rates would kill the US economy. Higher nominal rates with higher inflation is a big meh. The economy has changed greatly since 1980. It is mostly debt expansion driven now and that leads toward higher earnings on equities. I need to see a real "blowoff" in debt expansion before I see the next bust to be bailed out.

  7. Even a broken clock shows the right time twice a day. So every time the market is higher if you keep saying "its extreme watchout" you will look like a genius when the correction eventually comes. But like William O'Neil says a stock like Apple does not reach $700 all at once. It was $80 then $90 then $100 ... all the time the pundits kept saying "we don't know where the next blockbuster product will come from" "sell sell sell". .... eventually it does go from $200 to $150 all the naysayers are proved correct, panicked sellers are glad to get out with some money, ... only to miss out the run from $150 to $350 !!! These articles will be written but its up to us to look at stocks in our portfolio and determine what we want to do.

  8. Very interesting article, but stock market keep moving up ( USA) but fewer stocks are keep moving up. Mostly internet
    (few comp), Biotech ( because of Obamacare) are moving. Netflix earn only .02 cents and stock moved 16%up, but it is already expensive stock. Different sectors are pushing market high. Old theory dow transport was down because of technology reduced cost. or we have to look new technology to make money. Old is very important but you can't make money with base metal, oil, gas, gold,? Oil price down it is good only for USA citizens, rest of the world have high inflation because everything counts on US $. It is totally unbalance.
    When USA have to pay their debt? 60 tri? Higher interest rate will kill USA's economy? confused...........

    1. Don't be confused, when things are proceeding towards the wrong path, probable result "What" is sure, and then only question remains, "When"? Rule of nature is very clear, Achieve Right or Good or Favourable destination is never possible when selected or opted path thereof, is wrong.

      1. Very Interesting but it states that we are in a bubble and it will burst at some point which could take couple days / months or years.
        Do you have any insight on the markets or analysis?

        1. For Gold bubble, I had warn since 2011 near about $ 1850, as far as Stocks are concerned, stories are different world wide, so any standardised prediction is not possible, however, as far as US Stocks are concerned, couple days or months are difficult to forecast because it will be determined through most probable forth coming Currency War, but ultimately it is a question of maximum 2 to 3 quarters.

          As you have not stated that in which market you are playing, so if you can provide this detail, i will be in a batter position to give some clues.

          1. Thanks for your insight.

            Generally was interested in US markets and I have investors who are involved heavily in property in Mumbai / Hong Kong / China & Dubai.

            Do you have any email?

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