Hi EZ², Re: moderate speculation while high valuations.......
Here's what I mean about these two components of the market giving a mixed message.
Relative Valuation has been way above its 90th percentile for a long time. This level of risk exposure by investors is usually not sustained. What is curious is that most of the time in the past when we've seen this sort of high valuation we've also seen high speculation (it being a driving force of the overly high valuations).
But, as we see here, Speculation is moderate and really has been since last August.
It's almost as though too many people have been at the same party talking to each other about how wonderful the stock market is. Pretty soon they actually start believing each other!
Maybe it's just too much money coming out of real estate with no other place to go that has propped the market up for so long. Whatever the source, to get the Relative Valuation component back down to even the 50th percentile would require a healthy correction. S&P 500 at 1055 would bring about such a level. That seems painfully far away. So does NASDAQ 1900, but that's about what we'd need to get back to a 50th percentile reading.
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