I posted my Bear-o-meter reading a couple of weeks ago when it showed a low- neutral reading of “3”. That is, the indicator suggested a flat market, with some caution. Things have changed – the indicator now reads a bearish “1”, so I thought I’d better update readers.
Just a quick refresher on what the indicator is comprised of. The Bear-o-meter is a compilation of 12 indicators.
- 2 are trend indicators,
- 4 are breadth indicators (although I use 2 of them as momentum indicators),
- 1 is a value indicator,
- 3 are sentiment indicators,
- 1 is plain old seasonality (best/worst 6 months).
Each indicator can earn a positive, negative or neutral score. Some of the indicators are read twice—for example, I look at slopes as well as relative positions for the A/D line and moving averages.
Since my reading on May 1st, we’ve had 2 of the signals move from bullish or neutral to minor bearish. Specifically, The Advance/Decline line is now diverging bearishly vs. the S&P 500. This means that the market is, on the whole, comprised of more declining stocks than rising stocks. The chart below, courtesy of www.freestockcharts.com, illustrates the divergence. You’ll also note the move of the AD line (black line) below the 40 week / 200 day MA (red MA line). That was the second new negative signal on my list.
Of note: The VIX was at around 10 – an extraordinarily low reading – less than a week ago. The VIX has since then moved above 12 –a marginally neutral reading—so I’ll count it as neutral today. If I had read it a week ago it would have pushed the Bear-o-meter into a reading of “0”—which is quite bearish.
Beyond that, most of the signals remain the same. Sentiment via the smart/dumb money spread is negative. We’re still above the key MA’s (200 day, 50 day) and they are sloping up. I will note that the distance between the 200 day MA and the S&P 500 was about 7%. While not a super-overbought level (which I tend to view as a 10% spread between the market and the 200 day MA) –its at around 6-7% spread where you do start to get into a potential for at least a neartermed correction.
Conclusion: we don’t have a massive sell signal in place, but certainly the Bear-o-meter is suggesting more caution at this time.