Courtesy of Pam Martens
Here’s the thing about stock market bubbles: they can last far longer than even expert analysis suggests they should. But correctly defining a stock market as an unsustainable bubble is still a worthy exercise since it clarifies how much one stands to lose when the bubble does eventually pop.
One of the market watchers who is unabashedly calling for a major market correction – potentially in the realm of 60 percent from peak to trough – is John P. Hussman, President of Hussman Investment Trust. In his most recent market commentary, Hussman writes:
“Unlike much of the recent bull market, present market conditions reflect not only extreme valuations (including a full syndrome of overvalued, overbought, overbullish features), but also divergence and dispersion in our measures of market internals. It’s that deterioration in market internals that threatens to unleash the beast that has been patiently biding its time within extreme valuations. Given those extreme valuations, I continue to believe that the completion of this market cycle will be a terrible ordeal for passive investors.”
These are among the items that are worrying Hussman:
“Deteriorating participation of individual stocks in the bounce, as more than 40% of individual U.S. stocks are again trading below their respective 200-day averages;
“A leadership reversal on the heels of recent recovery highs, with the number of stocks hitting new 52-week lows suddenly flipping above the number of stocks hitting new 52-week highs…
…
