So not including the cluster of signals we've observed in recent months, we've seen 6 clusters of instances in post-war data (we're taking the 1997, 1999 and 2000 cases as separate events since they were more than a few months apart). Four of them closely preceded the four worst market losses in post-war data, one was quickly followed by a 12% market decline, and one was a false signal over the short- and intermediate-term, yet the S&P 500 was still trading at a lower level 5 years later.
Examining this set of instances, it's clear that overvalued, overbought, overbullish, rising-yields syndromes as extreme as we observe today are even more important for their extended implications than they are for market prospects over say, 3-6 months. Though there is a tendency toward abrupt market plunges [...]
As of last week, the Market Climate for equities was characterized by an unusually extreme profile of overvalued, overbought, overbullish, rising-yield conditions. [...]
Following the Federal Reserve's policy meeting last week, Ben Bernanke gave a press conference. From the standpoint of what I continue to view as a terribly reckless policy, Bernanke actually did a fairly good job in that he both avoided any allusion to further rounds of QE while also avoiding any panic about a near-term reversal of the Fed's bloated balance sheet.
What is still fascinating to me is that when Bernanke discusses his claims of "success" regarding QE2, nearly every metric he offers is an indicator of financial market distortion instead of real economic activity. [...]
Present Conditions Are Among The Most Extreme in History, says Hussman
This week, in his market commentary, John Hussman defines the technical criteria he has been using for calling the current market conditions "overvalued, overbought, overbullish, rising-yields syndrome". He's conclusion is that present conditions are among the most extreme in history.