The following chart shows the level of cash held by US investors. With the ongoing rally in stocks, investors have poured every cent they have into stocks. This is an ominous sign as the current cash levels are similar to the levels we saw prior to the 2000 and 2008 stock market crash.

US Investors are so optimistic about the outlook for stocks that they have even borrowed money to buy stocks. The following chart shows that the amount of leverage currently being used to purchase stocks is greater than the levels seen prior to the 2000 and 2008 stock market crash. If stocks start to decline, those investors that have used leverage to purchase stocks will be forced to sell their positions in order to settle their loans. While leverage can accelerate a rally to the upside in stock prices, it also accelerates the decline when stocks ultimately correct. Even Warren Buffet appears to be taking a more defensive approach towards the US stocks market. He currently has $49 billion in cash. The last time we saw Buffet raise this much cash was prior to the 2008 stock market crash.

Eoin Treacy's view One consideration when looking at total leverage data is how cheap it is to borrow when compared to similar situations historically. At today's record low interest rates peer pressure is a significant issue for money managers. Ever more participants take on additional risk in order to boost returns and to keep pace with a market that has until recently been rallying persistently for six months. This is a sound strategy for as long as the momentum continues but increases the potential for volatility when prices begin to decline and margin calls go out.

A constant thread in the Subscriber's Audio over the last few weeks has been the fact that the S&P500 has posted a series of reactions of between 40 and 60 points since November and has become overbought relative to the 200-day MA in the process.

The overextension was an inconsistency and yesterday's pullback brings the current reaction to more than 60 points which is an additional inconsistency for the six-month portion of the medium-term uptrend. The potential for mean reversion has increased and a significant number of the better performers over the last six months have pulled back sharply.

The Russell 2000 Index of small caps encountered resistance near the psychological 1000 level over the last few weeks and is at least consolidating its earlier powerful advance.

The KBW Regional Banks Index posted a new four-year high three weeks ago and is currently unwinding the short-term overbought condition relative to the 200-day MA.