Bear-o-meter continues to read high risk

The Bear-o-meter is a compilation of indicators that quantitatively measure the potential risk/reward tradeoffs for the US markets. It follows 11 indicators that broadly measure: Trend, Breadth, Breadth Momentum, Value, Sentiment & Seasonality. No single indicator is the deciding factor. Instead, the meter receives positive, negative or neutral points from each of the 11 indicators, and a total is derived. A reading of 0-3 is high risk. 3-6 is neutral. And 6-8 is bullish.

The formula is not a “secret”. If you know me, I believe in full disclosure. You can buy my book Smart Money and for less than $20 learn how to construct the Bear-o-meter yourself. I really dislike it when someone in my industry tries to create an atmosphere of mysticism by calling their process “proprietary”. Gimme a break. That’s marketing BS. Everything comes down to price, volume, momentum, sentiment, breadth, value. Sure, my formula may differ from another, but its not like I have the holy grail, and neither does the local guru with his/her “proprietary” system. BS baffles brains, as they say.

Anyhow, I track the Bear-o-meter and post a reading in the first week of each month. Its rated 0-8. The lower the score, the higher the risk – higher scores are bullish. The illustration above shows you that there are 3 general zones – Bearish, Neutral, Bullish. Obviously, “3” and “5” are transitional readings from one zone to the next. When you get an entrenched low reading, or a high reading – that’s when you need to pay attention. And that is where we have been since April 7th, 2022. Back then, the meter went from a super long history of “neutral-bullish” scores…. into an uber-low “Bearish” reading of 0 that day. And its stayed there since.

The meter has been extraordinarily helpful in guiding your portfolio posturing if you follow this blog regularly. Since April, we have seen nothing but “0” or “1” at best. And yup, the market has been bearish. So, pay attention, class!

Bear-o-meter still reads “0”

Once again, we have that uber-deep high risk reading coming out of the meter. Nothing much has changed. The Industrials are seeing negative divergence by the transports – again. The market remains below its 200 day SMA. Sentiment is pessimistic, but not at that “washed out” level that I assign bullish points to. The only bullish reading out of the gang was Smart Money/ Dumb Money spread. But that’s one positive indicator, within a heap of negatives. So, I won’t bother posting any charts today. Nothing is materially different from last month’s reading. In a nutshell, without swearing, I will say this market smells like poop.

When to buy

Do you subscribe to the ValueTrend newsletter? If not, I urge you to do so. It comes out about once a month, and provides you with a slightly edited version of the newsletter sent to our clients. Only the specific stock names are missing – but all our other strategic insights are there for you. We’ve been providing this newsletter free of charge to thousands of investors across Canada for more than 15 years. Click here to subscribe.

Here are the concluding notes from our newest issue, sent out yesterday:

We continue to look for a moment of capitulation – not just fear – that will wash investors fully out of this market. We will not buy until that phase of the bear market appears. Keith managed the ValueTrend Equity Platform during the 2001 and 2008 bear markets. Months and months of pain for investors were NOT REVERSED until investors moved into full, unabridged panic-mode. Ironically, that was when the opportunity arose. We are not there yet! Sure, there is fear. But panic? Nope. Not yet. Keith’s sentiment work will offer clues as to when the true moment of panic arrives. As Rothschild said…”The time to buy is when the blood is running on the streets”.

 

4 Comments

  • Hi Keith,

    I read your latest newsletter and I have a question. When the buy time comes, what should I look for, technology?

    Thank you!
    Ana

    Reply
    • Ana I cannot advise you on specific strategies. But I can say, as noted in the blog, that high beta (discretionary, growth, tech, etc) will be where we go shopping. Also, the broad markets like the SPX and NASDAQ can be traded with ETF’s. That makes it easier.

      Reply
  • Hi Keith. I’ve seen some long-term cycle work lately (I think based on De Mark) that indicates we may be in for a years-long period of zero gains for indices. The writers compared our current macro situation to the 70s when US markets experienced mini bulls and bears but always wiped out all the gains to end nowhere after 7-8 years. With all the negatives today (rising rates, high inflation, slowing growth, asset bubbles, huge sovereign debt burdens), do you think that passive indexers could have a long period of heartbreak here? Is this decades-long type of analysis valid or just crystal ball prediction?

    Regardless of where markets go this year or next, I’m convinced that our issues today – many stemming from bad policy – will be felt for years in economies and markets. The best outcome I can see now is that the spend-like-drunken-sailors crowd will be voted out of office, hopefully on both sides of the border.

    People don’t seem to pay much attention until they can’t pay their transportation and grocery bills.

    Reply
    • Paula this is an intelligent question, thankyou for posting it. Yes, the market has gone through many sideways periods of little or no net-gain. The big ones were from late ’60’s to early ’80’s – and 1999-2010. Both of those long cases (as well as some shorter sideways periods in the early 1900’s) have experienced HUGE tradable swings, but didn’t put in material higher highs. I wrote an article before the 2008 crash on the subject. I may re-write it and bring it up to date. So I would absolutely not debate the potential of a prolonged sideways period. In fact, I rather agree with your view to a large extent, with the caveat that as TA’s, we must NOT form themes. We go with the trend, and that comes before making predictions.

      Anyhow–lets say it does go into one of these long sideways periods. The point within any such market is that in these huge swings – (20% + often!) – much profit can be had. To your point, though, buy and hold index people are rather pooched. And big institutional always-fully-invested type managers (who call themselves active, but really just move from stock A to stock B without raising much cash) are not going to add as much value as a true active manager or individual investor who employs at least some logical element of “market timing” (although I hate that term…its really more about identification of the risk/return odds, not crystal ball timing).
      Final thought- I will re-write my old article from 2007 and post it on this blog. I have you to thank for the inspiration. You will enjoy it. Gimme a week or two.

      Reply

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