Bear-o-meter moves to neutral

For the past 2 months, the Bear-o-meter has migrated between readings of  2-3. As you’ll notice in the scale below, that level kept the Bear-o-meter in the “higher risk” territory. You can do a search on this blog for other Bear-o-meter readings to track its readings –the last one being in June. Note that the last reading did forewarn us of the potential for higher risk – that reading was proven correct, given the recent volatility. Here’s the link.

At the risk of sounding like a broken record—I’d like to remind you of the purpose of this compilation: The Bear-o-meter is a very big picture (macro) view of the markets. It’s not designed to be a precise market timing vehicle. Instead, it tries to read the relative balance of risk vs. reward present on the US markets at a given point of time. It gives you an edge, but not an absolute. A high rating on the Bear-o-meter indicates higher potential for reward than risk – and a low reading indicates the relative risk vs. reward is unfavorable.

As you are no doubt aware, markets always have the potential for delivering downside or upside—either can happen. So please don’t take the current, or past ratings as some type of revelation. It’s just a relative risk/reward level at the moment, subject to change, with no assertions that you or I should trade off of its readings. At ValueTrend, we adjust our cash weightings in the ValueTrend Equity Platform according to Bear-o-meter readings. But we don’t make all-in or all-out decisions based on it. OK – enough said.

Right now, the Bear-o-meter reads 4. That’s up nicely from my last reading (noted in the above linked blog) of 2 on June 13th. What this means is that the market’s risk environment has potentially moved from a higher risk environment to a “neutral” environment. Keep in mind that the score of “4” is the lowest level of neutral on the chart. It doesn’t mean you sell the farm and buy stocks. It means that risk has gotten a bit lower relative to return, but it’s not a screamingly wonderful environment. Its neutral.

Our cash scale- when seeing a Bear-o-meter reading – of 4 suggests anywhere from 0-15% cash be held in our Equity Platform. We’re at 20% right now. As I just took this reading on the weekend, I’ll give it a couple of days and see if the rating changes. If not, I may reduce our cash holdings by 5% by adding a new stock or two.

 

Keith on BNN

I’ll be on BNN at noon today – hope you can catch it. Feel free to call into the show with your questions. Call Toll-Free 1-855-326-6266.

6 Comments

    • Sally–two things
      First, I find that rising wedges are really hard to identify. Its a little more “in the eye of the beholder’ than a triangle, etc. I am never sure if what we are looking at is indeed a rising wedge–not sure that I see it on the S&P, but that may be because its so hard to quantify the look.
      Ok, next: rising wedges – even when they are identified (usually by other people than me, as I seem so inept at seeing the formation…)- rarely turn out to be an accurate predictor. I see an analyst say “XYX is in a bearish rising wedge”–and then watch the stock make higher highs a few months later. so, my view on this formation’s predictability or identifiability is fuzzy.
      Plain potato’s analysis- the market has not put in a lower low on the weekly chart, and hasn’t put in a higher high either. In other words, its consolidating. If it breaks the low of January and Feb’s test of that low, and takes out the 200 day SMA–then we are in trouble. So far –not the case.

      Reply
  • Thanks again Keith,
    Is it still mostly dumb money moving markets at this time with smart money holding back?
    I like know this, but don’t know where to find the information on my own.

    Reply
    • Sally–you can subscribe to http://www.sentimentrader.com and get their smart/dumb money spreads. I use them as part of my Bear-o-meter compilation. Right now, that spread is neutral–its actually closer to the “bull” side (ie smart money is starting to buy)–but not yet truly bullish.

      Reply
  • To me, the remarkable thing about the markets now is the lack of the “correction” or the usual summer doldrums. Are we going to get one this year? August can often be a dangerous month.

    Reply
    • Interestingly, the markets are actually acting pretty in sync with seasonal patterns–a bit of strength in July after a bit of weakness in June is typical. And yes- August is a more dangerous month. I am likely to reduce a couple of our underperformers by third week of July as they continue to rally into that seasonal peak time, and then look for new stocks in any corrective action over the following weeks or months.

      Reply

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