Bear-o-meter, and the great mystery buyer

I did a Bear-o-meter reading on Friday. You can search my past blogs to get more information on how this compilation works. Basically, it’s a compilation of many indicators that track trend, cumulative breadth, sentiment, seasonality, value, and breadth/momentum. As always, I do like to stress that the Bear-o-meter is not a precision market timing tool. It merely reads the relative ratio of risk vs. reward. A low reading (high risk) doesn’t imply markets cannot rise. Indeed, the markets DID rise after last month’s very low reading of “1”.

So, it isn’t fail-proof (what is?). Having said that, it alerted us to become more cautious prior to major corrections in the past—most recently alerting us to the volatility over 2018. So, I tend to pay attention to its signals despite the fact that it’s not going to be a perfect indicator. As I said…what is?

Before getting to the current reading, I thought it would be interesting to recap a report from sentimentrader.com. Jason Goepfert illustrates to his subscribers (which ValueTrend has been for many years) that the normal market movers have not been particularly involved in the rally since the late December lows. Specifically, large speculators, small speculators, hedge funds, and equity funds (including ETF’s) are NOT getting strong inflows or experiencing strong trading volumes. This is counter to historical norms. In his research, Mr. Goepfert effectively asks…who’s the buyer of this rally? It’s a mystery…

Anyhow, the Bear-o-meter has moved from a bearish “1” in February to a neutral “4” as of last Friday March 1st. A reading of 4 doesn’t give us any edge for  evaluating the potential balance between risk and return. The way I look at it is the reading tells us to pick our stocks carefully, stay mostly invested in the market, while holding a bit of cash on the sidelines. We’ve been pretty heavy in cash (averaging 30% for the past month) and while that has not hurt us, it didn’t help us keep up with the Jones either. As I noted in a prior blog…I hate losing my own or my clients money.  My families wealth (beyond some properties) is held in the ValueTrend models…so I remain in the same boat as my clients.  

The recent changes to the Bear-o-meter from February to Friday include:

Positive: A higher reading on the cumulative A/D (breadth) line

Positive: A move above the 200 day SMA and the 50 day SMA (long and short term trend indicators)

Negative: Smart/dumb money spread has moved to more confidence by dumb money

Negative: The Dow industrials are at their last peak of 25,900 vs. the transports, which are still below their last peak of 11,000

All in, our recent moves have been to move into stocks and sectors that were trending negatively last year, and are basing and / or breaking out currently. I’ve noted these moves on my recent BNN Top Picks. We are focusing on commodities (directly held vis ETF’s, along with producers), Emerging Markets, select European country ETF’s and generally oversold stocks with the base/breakout formation noted above.

Below is a photo from the Capital Markets talk given to Ryerson students. The talk featured Jason Donville, Ryan Bushell and myself – where we all presented our own way of managing client wealth, along with some thoughts for students hoping to get into the industry. It was a great night, and Aleks Bozic (who organized the event) did a bang-up job.

Happy hunting out there!

12 Comments

  • Keith, can you provide your insightful analysis of where we are in terms of the Elliott Wave Theory for the SPX.

    Thanks,

    Silverquest

    Reply
    • Hard to say, but could be the “B” wave within the corrective phase. Honestly, I am not an EWT expert, I use it more as a guideline based on crowd sentiment. Typically, a bull market 5th (final) wave is earmarked by speculation and or concentration–which 2017 seemed to have (FANGs). So the correction we saw late in 2018 may have been “A”
      Having said that–if you draw trendlines going back to the beginning of the bull, it has not yet broken. So that’s why I don’t boldly say the market is in the midst of the 3-stage counter move.
      Traditional TA is still my forte.

      Reply
  • Ok thanks Keith just wanted to get feel for EWT for the overall market.

    Reply
  • Comment here on your latest blog since the Captcha is not working.

    Seriously Keith….your very political and possibly libelous comments ( ” crime” and “illegal” ), I don’t believe, are in keeping with your Professional status. They sound more like some comments from a trailer park living Trump supporter. ie: ” Lock her Up”, and similar.

    Keeping things more neutral is much preferred especially since the situations you refer to, are very much still being revealed.

    Reply
    • Point taken Ron
      Yeah, I’ve been pretty upset by whats happened, but to your point–edits being made!

      Reply
  • I disagree with Ron’s assessment of your blog on our political situation in Canada. Liberals do not like to be held accountable for their actions. If that was any other government in power Liberals would be all over it. The media gives them a free pass. Free speech is an essential element of our country unless it is against the Liberal party. I do not think one complaint should dissuade you from expressing your views. I am appalled how this government has pushed us into deep deep debt. Every file whether it is China, India, trade talks, energy etc has been a gong show. I did not consider your comments to be unprofessional. Government actions or inactions is this case have repercussions on our investment portfolios.

    Reply
    • Dave I really appreciate this. I did rethink my wording, though – I was verbalizing my anger in a more venomous way than perhaps I should in the context of a professional comment about currency projections. Having said that, its laughable to hear the comments about an innocent “misunderstanding” in the SNC case-… that’s why the #2 guy in the PM’s office just decided to leave..no particular reason! Who buys this line? But like many political events–things get covered up (recall the gas plant scandal and erased computer files in Ontario’s government–amazingly brushed over!)
      Everything you say, and more, is an equally shared opinion. IMO – this extends beyond Liberals in general. I have believed since day ONE (!!!) that the current administration was setting us up for disaster-I am not newly awakened to the mistake Canadians made in electing these guys -I knew enough before the current PM’s election (amongst other things, I had an interesting conversation with a person who knows the PM personally – and it was disturbing). I’ve been involved with political boards for a few years and hear the stuff that most Canadians simply don’t hear. I produced this blog in 2015: https://www.valuetrend.ca/keiths-rant-some-animals-are-more-equal-than-others/

      Honestly, I regret that the Liberals did not elect within their own ranks somebody with intelligence and economic experience. Bob Rae, despite his socialist makeup, is by far a better man in so many respects – I assure you I would never have endorsed his left wing agenda’s–but I do think he would have had a far more honest and level headed approach and would only criticise policies, not the man in his case. The current PM is an embarrassment – chosen not for his depth of knowledge or his integrity, but for his last name and his looks. And yes, having incompetent people in high positions does most certainly affect our dollar, our economy, our markets, our debt levels, and our focus (eg–whats more important–gender politics, or the national debt….gah!)
      Anyhow, back to our regularly scheduled program!

      Reply
      • I couldn’t agree more with your comments especially about how unqualified Junior is to run our government! I am a teacher, a real teacher (math, literacy, French, history, geography) not a drama teacher! Did this man ever take a business course? Economics? It certainly doesn’t look like it.
        I never voted for him, but a lot of my friends did…but never again, they tell me. I hope voting Canadians heed the numerous warning signs and stop voting for the Liberals!

        Reply
  • I agree with Ron, and I totally agree with you, Keith.
    And if we don’t start speaking up , this Liberal government will push Canada over the cliff economically .
    Canadians have got to forget the Hollywood image and look at policy …oh, and integrity .
    This SNC affair is just the onion with one layer peeled off. Keep looking into the Liberal Party’s Quebec favoritism and you’ll find its a very rank onion indeed!

    Reply
  • I too know a lot of stories about our illustrious PM through friends who know him personally. I am absolutely terrified that he will get in again. My gut feeling is that he will. Unfortunately Andrew Scheer is not resonating with many voters and the NDP leader is not helping matters. This SNC matter is only the tip of the iceberg.

    Reply
    • I guess to know him is worse than not…ignorance is bliss?

      Reply

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