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Any Stock Market Bounce will be Temporary

US stocks are likely to begin a short-term bounce today, but we are confident that this bounce will only be temporary – and a good opportunity to go short and buy put options in the most overvalued sectors like biotechnology. At yesterday’s close of trading, the total market cap of US stocks was $24.08 trillion, down from the record high set on May 21st of $27.32 trillion – a valuation loss of $3.24 trillion in about two months.

usmarketcapvsgdp08252015The NYSE at yesterday’s close had a market cap of $17.42 trillion, down $2.46 trillion or 12.3% from its recent all-time high of $19.88 trillion vs. the NASDAQ’s market cap of $6.655 trillion, down $1.018 trillion or 13.3% from its recent all-time high of $7.673 trillion.

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The market cap of all US stocks at yesterday’s close was equal to 134.96% of US GDP, down from a peak market cap/GDP ratio in May of 154.31%. At its May peak, the US stock market as a whole was in “extremely overvalued” territory – with a market cap/GDP ratio that was in the 95th percentile since 1993. At yesterday’s close, the US stock market as a whole was in “overvalued” territory with a market cap/GDP ratio that was in the 75th percentile since 1993.

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The NASDAQ is currently much more overinflated than the NYSE. The NYSE’s market cap/GDP ratio finished yesterday at 97.65%, down from its recent peak of 113.28%. The NYSE was recently in “extremely overvalued” territory, but at yesterday’s close was no longer overvalued at all. The NYSE only needs to decline by an additional 2.7% from its closing level yesterday to reach its median market cap/GDP ratio of 95.01%.

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Since 2003, the NYSE has traded with a volume weighted average market cap of $13.427 trillion. The NYSE is very likely to return to its volume weighted average market cap in the near-future, and will need to decline by 25.93% from yesterday’s close to reach it.

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Although the NASDAQ at yesterday’s close was no longer in “extremely overvalued” territory, it remained deep in “overvalued” territory with a market cap/GDP ratio of 37.3% – down from its recent peak of 43.01%. The NASDAQ needs to decline by an additional 35.2% from its closing level yesterday to reach its median market cap/GDP ratio of 24.17%.nasdaqmarketcapgdpratio08252015

Since 2003, the NASDAQ has traded with a volume weighted average market cap of $3.596 trillion. The NASDAQ is very likely to return to its volume weighted average market cap in the near-future, and will need to decline by 45.97% from yesterday’s close to reach it.

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