A Stock Market of Mixed Metaphors

I've certainly made my share of metaphors in my diary over the years, and here are a few more:

* Owning bonds is like picking up nickels in front of a steamroller.

* This year has been a period to squeeze more juice out of risk assets -- but be ready to throw away the fruit before it gets spoiled.

* Beware of the market's "traffic jams." As with Hotel California, you can check out any time you want, but it's possible that you can never leave.

Steamrollers, rotten fruit and traffic jams -- I often use metaphors to describe the market, including so-called "mixed metaphors."

That's appropriate, as I can't in four decades of investing remember such a mixed market as we've seen the past two years, with uncertain internal action and inconsistency of direction. We've experienced a series of large trading swings in both directions, as well as extremes in individual sectors' performances.

For example, the S&P 500 and the Dow Jones Industrial Average both recently hit new highs, but the broader NYSE Composite, Value Line Geometric Index and Russell 2000 are all more than 5% below record territory.

Some technical signs are also mixed. For example, the S&P 500's McClellan Oscillator is below neutral and supportive of a bounce, while its McClellan Summation Index (a measure of extremes on an intermediate basis) is stalling at an elevated overbought level.

These striking differences exist even within individual market sectors. For instance, theIndustrial Select Sector SPDR Fund (XLI) has traded into record-high territory recently, but the more-diversified First Trust Industrials/Producer Durables AlphaDEX ETF (FXR)remains well below its early 2015 high.

Is Change in the Air?

Now, we're some five weeks past Wall Street's post-Brexit-vote lows, and most measures of market breadth have been strong as we moved from oversold to overbought conditions.

This has pushed many active managers into the market. For instance, I noted last weekthat the National Association of Active Investment Managers Exposure Index recently hit 100%.

But to me, that says that stocks are now meaningfully overbought. I'd also point out that Friday's daily put/call ratio rose to an elevated 1.29 even as we enter the August-to-September period, which has traditionally been equities' weakest time of the year.

Perhaps not surprisingly, energy and miscellaneous commodities (the market's recent leaders) are both turning lower. Moreover, the S&P 500 has been in a remarkably narrow range recently -- the narrowest range that the index has seen in the past two decades by some measures. An old technical-analysis premise holds that narrow ranges often produce whipsaws.

The Bottom Line

My guess is that a market correction could be imminent, and that some important leadership shifts could lie ahead.

But the Bull Market in Complacency still looks alive and well to me. I see an absence of investor concern about any meaningful correction or market drawdown -- in a large part thanks to the liquidity and low or negative interest rates that the world's central bankers have bestowed upon markets.