Today, as it is the beginning of a new month, I will once again take a reading of the Bear-o-meter compilation. For new readers, the Bear-o-meter is a compilation of trend, breadth, seasonality, sentiment, breadth-momentum and value indicators. It assigns positive, negative or neutral scores to each of 11 individual factors covering those broader categories. It then gives you a score of 0-8, where 0 is high risk/ worse odds for upside, and 8 is low risk/ good odds of upside. As always, it is important to understand that markets always contain risk and reward potential. As such, a high risk reading (0-2) does not mean the market is doomed to fall. Conversely, a low risk reading (6-8) does not mean markets cannot fall. Here is the Bear-o-meter chart indicating the 3 zones of risk:
Fundamental data supporting a recession
Before getting to the technical side of todays blog (Bear-o-meter reading), lets look at some recent economic data:
ISM Mfg chart & PMI data – Courtesy Beartraps
– PMI fell to 52.8 vs 53.0, lowest since June 2020
-Inventories rose to 57.3 vs 56.0, highest since 1984
– Production fell to 53.5 vs 54.9, lowest since May 2020
– New orders fell to 48 vs 49.2, lowest since May 2020 and second month of contraction
– Employment rose to 49.9 vs 47.3, third month of contraction
– Supplier deliveries fell to 55.2 vs 57.3, lowest since Jan. 2020
– Customer inventories rose to 39.5 vs 35.2, highest since July 2020
– Prices paid fell to 60.0 vs 78.5, lowest since Aug. 2020 and biggest monthly drop since 2010
– Backlog of orders fell to 51.3 vs 53.2, lowest since June 2020
– New export orders rose to 52.6 vs 50.7
– Imports rose to 54.4 vs 50.7
Given the above, it might be that the next stage in Wall-Streeter prognosis’s might look something like the following: Picture two Wall Street Head of Research gurus having lunch. They’re discussing their S&P 500 earnings outlook:
“Hey, Fred, we still have SPX 2022 EPS up at $230 – $258 for next year”
“Gee Bob, I think you have to take those numbers down”
“Ok Fred, I will see you at the club tonight for squash”.
Sure, I’m making this up. But – the question is: what if that type of conversation does start to occur as the data rolls in? What is the outlook for market returns upon lower guidance and earnings prognostications? This may support my question regarding the potential for a sideways market over the coming year(s).
Bear-o-meter still reads “0”: High risk
The interesting thing about the Bear-o-meter of late has been its persistence in staying within the “high risk” zone. Funny enough, the sentiment and breadth indicators within the compilation have largely read “neutral” since the original “High Risk Alert” given back in April. Despite the expected bear-market rallies, the meter has been well worth heeding as a predictive model for the bear market trend.
Today, I took another reading of the meter, and mostly every indicator within the compilation mirrored that of last month. The only exceptions were a positive point that was assigned to the meter for the move above the 50 day Simple Moving Average (SMA).Here’s the chart.
Offsetting the positive point coming from the 50 day SMA move was a negative point from the Smart Money/ Dumb Money sentiment indicator. It moved from a balance of Smart Money high confidence against Dumb Money fear (which is a positive thing) to a more neutral balance between the two.
Bottom line, I don’t see a reason to start buying just yet.
2 new videos
I just published an interesting video (well, I think it was interesting) looking at some longer termed commodity cycles. I also published a video with a couple of the charts and thoughts in the upcoming research report examining a potential sideways market. You can view both of those videos on this page.
That research report, BTW, is only available to subscribers of the VT Update newsletter. I hope to have it out later this week. Subscribe to receive the newsletter, and the coming research report – which is a slightly edited version of the newsletter our clients get. Get the inside scoop here!