A bit of fundamental data, and this month’s Bear-o-meter reading

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 data

The Purchasing Managers’ Index or PMI is an economic indicator, which is derived after monthly surveys of different companies. The index shows trends in both the manufacturing and services sector.

– 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!

 

 

 

 

quote-teal

8 Comments

  • Is the prices paid in the PMI data for materials & wages?

    A month doesn’t make a trend but With such a drop in prices paid doesn’t that suggest inflation has peaked?

    Reply
    • ISM Manufacturing Prices Paid is one of the diffuse indicators, based on which the Supply Management Institute calculates the Manufacturing PMI. It reflects a change in prices paid by industry representatives for the products or services they receive. https://www.mql5.com/en/economic-calendar/united-states/ism-prices-paid
      Inflation may have peaked- my argument is not that it will stay near 8-9%. Rather, that it will become acceptable that a 2% inflation rate isn’t attainable, and we can look forward to much higher (perhaps 4%) inflation going forward. this implies materials and commodities will continue to be a good place to be.

      Reply
    • Bullion just bounced off of its April support level. It is non trending, but is not violating support. So its rather dead money until the USD starts to sell off (which I discussed in a video recently – I am bearish the USD for year-end decline)

      Reply
  • Thanks Keith. I always read your notes along with a couple other people that publish that I find so knowledgeable. It is getting so tempting to pull the trigger on the QQQ’s that were first to into the bear and that now look like they are breaking above the trendline that started around January 3rd. The Q’s have been bumping up against the trendline since Friday, and look like they are piercing above it substantially for the first time today. But I will wait for at least 3 days for the confirmation that the Q’s have reversed. Is that making some sense, though I know nothing is guaranteed so I would probably use a tight stop if I pull the trigger.

    Reply
    • Your thinking is similar to my own–i am looking for a sustainable broad market breakout (SPX > 4170 for a week+) and the QQQ/tech space is indeed very attractive – ideal if the NAZ breaks over 12,800 for a week. For more on that thought – you may have read my blogs and seen my video on the subject (tech/QQQ).

      Reply
  • Been reading the blog for years and am embarrassed to admit I still have no idea what the Bear-o-meter is showing! It always looks the same to me LOL!

    Reply
    • Hey Ned–read my book Smart Money Dumb Money–it gives a full description of how I construct the indicator and weight it. True, since beginning of 2022, it has read bearish so the reading is nearly the same each month. I noted that was kind of an anomaly in this blog. Go into the search tool and type Bear-o-meter and page back through history–you will see it has read quite accurately over time. And yes, it has swung into uber-bullish zones with good predictability in the past as well.

      Reply

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