March 24, 2025
Good morning,
In late December, I wrote a few Morning Notes about the bubble valuation of the market and the potential risks a market at extreme valuations carries. To trigger a memory, I ended each bubble valuation notereferencing Warren Buffet’s record cash holdings. While the market has gotten 10 – 15% cheaper since then, valuations are still high and just off their extremes. The potential risks any market at extreme valuation poses are still there today.
So, why spend so much energy lately determining whether the recent pullback is just a correction or the beginning of a bear market that might let a lot of air out of the bubble valuation? The answer, quoting John Maynard Keynes, “markets can remain irrational longer than you can remain solvent.” In the short term, the market recently got extremely oversold, which makes the possibility of a bounce quite likely. In fact, the 15-to-1 day (upside to downside volume) a week ago Friday (3/14) raises the likelihood that a bounce might last for a while (weeks/months).
Most market indicators (constituents of the market’s message) remain positive currently. But the longer the market takes to recover from the recent correction, the more long-term trend indicators will come under pressure. As mentioned Friday, the market is one step away from confirming the correction is over – breadth thrusts like we had on 3/14.
Futures are up over 1% in pre-market trading this morning. Overnight Futures have been a terrible indicator of where the trading day will end lately. But, it has been months since we’ve seen a +1% open. Maybe a little FOMO (fear of missing out) grabs investors today and Voil’a – we complete the 4-step bottoming process. We shall see.
Be well,
Mike