Birinyi Firm: Stock Market Is Overbought, Avoid it for Now

Monday, 31 Oct 2011 07:48 AM

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Investors have rushed back into the stock market so fast that equities are now largely overbought, but now is not the time to sell, it's just not the time to enter, according to Birinyi Associates, a research and money-management firm.

"Currently the S&P 500 is 5.15 percent above the top end of its trading envelope, which is the highest it has been in the past year. We consider anything within 2 percent of that level extremely overbought," says Kevin Pleines, equity market analyst at Birinyi Associates, according to CNBC.

Stock prices have been surging recently on sentiment that Europe is handling its debt issues while the U.S. economy is showing signs of improvement.
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Markets have been gripped in bouts of extreme volatility over the last several months, and although relief rallies in the stock market are grabbing headlines, consumers worldwide are still not fully confident in the future.

The Nielsen Global Consumer Confidence Index fell 1 point in the third quarter from the second quarter to 88 points, Reuters reports.

A reading below 100 indicates consumers are pessimistic about their economic outlook.

"The third quarter was volatile and challenging for global economies and financial markets amid stagnant U.S. unemployment figures and a worsening euro zone debt crisis," says Venkatesh Bala, chief economist at The Cambridge Group, a part of Nielsen, according to Reuters.

"A recessionary mindset is growing among consumers as more than half say they are currently in a recession — up 4 percentage points from last quarter and 7 points from the start of the year. The result is continued spending restraint for discretionary expenses, which is expected to continue into next year."

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