|It has been said that as an asset class, art can tell us much about animal spirits. When the art auction gavel continues to push prices to new all-time records, it usually means that the good times are about to come to an end. |
Take a look at a long-term chart of Sotheby's (BID), which went public in mid-1988, and you will see an interesting interplay between it and stocks. From its launch to its first peak in October 1989, the stock soared an incredible 352%, peaking two months before the Nikkei hit its all-time high, just shy of 40,000. See Figure 1.
|FIGURE 1: BID VS. SPY. Here's a weekly performance chart comparing Sotheby’s (BID) with the S&P exchange traded fund [ETF] (SPY). Every time BID enjoyed a rise in excess of 150%, it presaged a peak in the SPY.|
|Graphic provided by: www.VectorVest.com.|
|Its next supercharged trajectory saw it soar more than 165% from 1998 to April 1999, peaking nearly a year before the wider US stock market in March 2000. |
Between 2005 and October 2007, BID again shot for the moon, gaining 300% before crashing back to earth again, except this time its peak coincided with the peak in SPY.
|Then from March 2009 to April 2011, BID gained an unprecedented 650% before rolling over again. And as we see in the chart, it is now well off its April high and looks locked in a downtrend. (This assumption is confirmed by negative divergence between BID and its relative strength index [RSI] over the last year or so.)|
|As the horizontal dashed red line shows, each time BID has jumped more than 150%, it has peaked and a big drop in both BID and SPY has ensued. |
There is no guarantee that BID won't reignite and head higher, but the probability for this sort of move on the heels of a 600+% jump is zero.
|So how far behind is the Standard & Poor's 500 this time, given BID's past history as a bubble proxy, or could it be giving us a false signal?|
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