“Thank you for another superb long term outlook Friday Audio. Your information regarding the decline in the number of shares outstanding in the US adds another powerful argument to why the S & P could finally be breaking up out of its 13 year trading range with the ceiling just below 1,600, and moving into a long term bull market.

“Does the same thing apply to the UK and Germany where the FTSE and the DAX appear to being trying to break out of their respective 13 - year ranges? ( i.e. FTSE`s ceiling around 6500/7000 & the DAX`s around 8000) .

“Could you be so kind as to update the Data fed into the Topix 100 Index on the international chart page, I notice at least 4 of the constituents no longer trade, ie 5001, 8403, 5405 & 8755. Thank you ”

Eoin Treacy's view Thank you for your kind words. I reverse engineered a chart of the total number of shares outstanding on the NYSE from the short interest statistics they report and this can now be found in the Chart Library. (Also see Comment of the Day on February 18th).

The Jevons Paradox or “rebound effect” is most often referred to in terms of the commodity complex but is just as applicable to other asset classes. In commodities, low prices offer little incentive to increase supply and reduce the penalty for increased consumption. As the situation persists, it eventually creates the conditions for a Supply Inelasticity Meets Rising Demand bull market to take hold.

The mania of the late 1990s resulted in an equity supply response. The premium one received for listing a company was at an all-time high and demand for stocks pushed prices ever higher. Eventually, higher interest rates and excess supply overwhelmed demand and resulted in a crash.

Following two crashes in a decade, the regulatory response has been to increase the administrative load on listed companies. Equity market volatility, particularly since 2008, has contributed to investors migrating to other asset classes such as bonds and gold. Ultra low interest rates have increased the incentive for companies to engage in balance sheet optimisation by buying back their shares or even taking companies private. The result is that the number of outstanding shares on the NYSE trended lower from 2010. I believe it is no exaggeration to describe the shares of a number of the Autonomies as collectors' items since their shares are becoming increasingly rare.

The Outstanding Number of Shares Index has steadied over the last few months but we are a long way from the type of supply increases that would suggest a major peak.

The S&P 500 broke successfully above 1600 for the first time earlier this month and despite a more than 10% overextension relative to the 200-day MA, the primary consistency of the four-month uptrend remains intact. This is the fourth reaction of between 40 and 60 points since November. A pullback of more than 60 points would be required to signal that supply is becoming more dominant and to suggest a reversion towards the mean is unfolding. A reduction and eventual removal of quantitative easing is likely to pose a significant headwind when it occurs which suggests that the potential for a first step to form in the region of the upper side of, the 1999 – 2013 range is quite high.

I'm afraid I do not have the same data for outstanding shares on either the LSE or Deutsche Bourse. However both the FTSE and DAX share a high degree of commonality with the S&P500.

The DAX surged between mid-April and last week and found support on Friday near 8250. A sustained move below that level is the minimum required to confirm a process of mean reversion is underway.

The FTSE-100 has not yet broken out to new highs and is susceptible to some consolidation in the region of the peak. However, it bounced impressively today from the region of the March high and a sustained move below 6600 would be required to confirm more than a temporary pause in this area.

I can confirm that the constituents of the Topix 100 are now up to date.