Bear-o-meter pulls a “180”

February 2, 202315 Comments

In the military, if you are instructed to turn and face the opposite direction, its called an “about face”. In non-military terms, we sometimes call changing our minds, or moving in the opposite direction “pulling a 180” – meaning to turn 180 degrees and move in the opposite direction. For the first time since April 7th of 2022 – the ValueTrend Bear-o-meter has pulled a 180. It’s moved firmly into the “bullish” zone. We’ll discuss that today, including how we anticipate trading in the near future.

When I issued the “High Risk Alert” back in April 2022, the SPX sat around 4600. This after retreating from its all time high of 4800 in January. Typically, points-based collection of indicators like the Bear-o-meter will lead or lag market tops and bottoms by a few months. After all, it incorporates numerous indictors under 5 broad categories of trend, sentiment, breadth, valuation, seasonality into one reading. All of these factors operate within different time frames (leading, coincidental, and lagging market performance). The Bear-o-meter provides a general risk/reward reading of the market within a multi-factor view – its very nature is not that of precision – but its still been a darned good tool when combined with trend analysis. Readers who paid attention to that warning, along with the trend alert (lower-low on the SPX) profited by moving into cash, value, and low beta as I discussed at the time. The SPX moved to 3500 within 6 months of the warning.

Today, I read the Bear-o-meter for my monthly update. In early January, the Bear-o-meter was firmly entrenched in its High-Risk zone. As noted, this compilation is NOT a coincident indicator designed to pick peaks and troughs. Its designed to view relative risk, and won’t move into a new zone until the weighting of ALL 5 factors are, in balance, leaning in a new direction. That takes a little time. Now, its pulled a 180. The Bear-o-meter has moved from “0” last month (where its hovered since April 2022) to 6! The illustration below shows you that its gone from High Risk to the first level within the Bullish category. Quite a move!  Like a fast car – doing zero to 60 in record time…I’ll cover the reasons for the change below.


A major contributor to the higher reading in the Bear-o-meter was market breadth. Breadth means broad participation. I look at many indicators which include % of stocks over their SMA’s, New High/Lows, cumulative breadth and comparative sector breadth. Most of the breadth momentum indicators like New High/Lows, and % over SMA’s were flat vs last month. But new positive points were scored in the A/D line (cumulative breadth) and the Dow Industrials vs. Transports pickup. Check the massive jump on the NYSE A/D line (black) vs the SPX (red). Positive divergence.

Check the massive move by the transports (black line) vs the Industrials (red line). Positive divergence.


To start – please note that yesterday’s bullish breakout of the SPX resistance point of 4100 is VERY encouraging. Having said that, we still need a bit of time for that level to hold.  I need to adhere to my absolute minimum of 3 days before starting to leg back into the market. That has yet to prove true. Still – good news for the bulls, so far.

Adding to the good news are positive signals given by the 200 day (40 week) SMA and the 50 day (10 week) SMA. The SPX has broken through both of these averages, adding 2 positive points to the Bear-o-meter.


Investor optimism – as quantified by the various sentiment indicators I follow – is largely high. The crux with these indicators is – are investors “too” optimistic? Well, so far, the enthusiasm is certainly approaching the high end of the spectrum. For example, the VIX, sitting near 18, is low. But not “too low/ too optimistic”. Same with the Put/Call ratio. Both show a certain level of investor complacency – but its not extreme.

However, one sentiment indictor, which admittedly can be a mid-termed leading indicator (aka the signals are not likely going to spell an imediate move for the market) is bearish. That’s the Smart Money/Dumb Money spread. Its well into the “Dumb Money happy, Smart Money Worried” zone. Historically, if the Dummies (retail investors) keep buying and the Smarties (commercial hedgers, pension managers, pro traders, etc) keep selling, you are setting up for a correction. Again, though, this condition can last a while before anything actually happens.

The Smart/Dumb chart is below for January 2022 to current. Note that since the bear began, the Smarties (blue line) have called the market troughs – noted by the “up” arrows. When they got bullish it coincided with opportunistic trades. Note that the Dummies fell in love with the market in August  – you will recall my comments noting this head-fake. When the Dummies were buying the Smarties were selling – note the “down” arrows.

The big deal now is that we have not had a big move DOWN in Smart Money confidence since the bear began. Meanwhile, the Dumb Money confidence is the highest its been. I think this is an important factor to consider when determining just how bullish we should be at this time.


If you get the ValueTrend Update newsletter, you will have read our latest edition entitled “Rules are rules”. Subscribe here if you don’t already.

ValueTrend adheres to rules. They enabled us to perform well in this and past bear markets. The tradeoff with such rules is that you cannot sell at the top, nor buy at the bottom. Systematic rules are not tools of clairvoyance, enabling you to identify precise timing opportunities. They are designed to help us discover the least risk opportunities, and avoid the highest risk scenarios. I encourage you to take the Online Technical Analysis Course to learn my system. For less than $400 it can help you make more profitable decisions, and save many thousands of dollars in mistakes. Cheap insurance.

Anyhow – our rules say that we must start to leg into the market if the SPX continues to hold its 4100 breakout for 3 + days. Assuming it does, the Bear-o-meter backs that decision with a positive risk/reward profile. Yet, sentiment is signaling a potential correction. So we won’t be jumping in with our cash all at once – again, assuming SPX 4100 holds into next week. But -rules are rules! And as I always like to say…”A system will save you from yourself”


  • Hi Keith,
    I read an article yesterday that referred to Michael Burry’s tweet after the Fed announcement yesterday, which in a single word :SELL
    The article also referenced others who are also not buying into this rally.
    In your blog today, you did note that the Smart Money is not buying into the rally either or as of the end of January. Has that changed today in light of the breaking of the 4100 level on the S&P 500 or is the Smart Money still selling despite the broad market participation in the rally that was also indicated in the blog. I guess I am just wondering if the Smart Money is continuing to SELL into this rally taking heed from people like Michael Burry. Thanks for your insights.

    • Great question Wendy–this is the kind of thing we face as investors sometimes. I hope you took my online course, as it outlines how to deal with such conflicts. But, in a nutshell, you need to follow your own system — in my case, I use trend as the primary indicator, and the sentiment/breadth as the degree of commitment after recognizing primary trend (commitment to equities, commitment to beta, and commitment to cash allocations)
      I also cover how to leg into the market.
      So–here we have part of my system saying “get in” –but that’s with a caveat that 4100 sticks for absolutely minimum of 3 days–I will wait to later next week to confirm that breakout. Whatever the case, because we have on forward-looking indicators (Smart/Dumb $) suggesting potential trouble ahead, I will – assuming 4100 holds, buy in with perhaps 1/4 of muy cash. Then, as the market moves, I will commit, or pull back, each week.
      We all want to buy the bottom and sell the top. If someone could do that with consistency, I have yet to meet them. But, with a system like mine, with all its faults of lagging the peaks/bottoms – and the faults of being forced into buying within a context of some (not many) bearish backgrounds – it works. I’ve learned over the long term that if I follow my system, it will control damage if things turn sour, yet get me in at a reasonable pace if things keep going up.
      Cake and eat it too kind of stuff…
      Hope that helps

    • The TSX is about that 20,500 level and has been so for several days.
      Could find good opportunities there.

  • Well written post. The smart money, dumb money indicator certainly gives me pause. I do find your system very interesting in its ability to take emotion out of the equation.

    • Thanks Harry–it should be noted that we ALL have emotional responses to markets – FOMO, regret, etc. It took me the first 10 years of my career to figure it out – aka – back test, and create a workable system that will save me from myself—-that’s why I coined my saying “A system will save you from yourself”. I originally printed that ditty and put it on my wall in my office when I was working with a brokerage firm. It was a reminder to stick to the system. Best advice I ever gave myself (grin!).

  • Great stuff Keith. When I look at the Advance/Decline line it has risen parabolically and looks like it has no where to go but down. I can see how this is positive at the present but not so much going forward. Am I over thinking this stuff.
    Things are so confusing, yesterday the S&P 500 is up and the TSX down but holding 20,500 since January 23rd. I was just about to start buying Canadian stocks when oil goes down and I get stopped out of most of my positions. That put a scare in me and made me gun shy to buy anything. Seems like a lot of moving parts right now.

    • There certainly is much room for this being yet another head-fake rally – mostly signaled by the sentiment indicators being AT sell points (Smart/Dumb $) or NEAR them. However, trend is trend, and rules are rules. My system involves confirmation rules (wait 3 days to 3 weeks to confirm a breakout), and allocation rules (leg in one step at a time per trend signals) and finally stop loss rules (sell upon breakdown of that new trend). I am waiting until next week to potentially make an initial leg back in – assuming 4100 holds. Visit the Online TA Course to get the entire process if you haven’t already.
      As the saying goes…”slowly, slowly, catchy monkey”!

  • In reference to market signals and the Jay Kaeppel presentation, can you explain one thing.

    If I’m watching five indicators (or more), do ALL indicators need to confirm themselves before we consider reinvesting? Can one indicator lag but there is still a positive sign overall?


    • Mike -just as with my Bear-o-meter – Jay uses a bunch of different indicators with differing objectives (economic, trend, sentiment) – he doesnt seem to have put them together as I have with the Bear-o-meter regarding an overall points system – but I’d say the concept is the same/
      For example – my most recent Bear-o-meter reading of 11 indicators gave a few screaming bullish – a few neutral – and one outright bearish (Smart/Dumb) with a few other sentiment readings that were neutral but close to being bearish. So–the net balance was mostly bullish or neutral, giveing it a 6/8. You’d have to take Jay’s indicators and measure them and (lets assume) that 4/5 were bullish or at least neutral, there might be a bullish case.
      You will always have some indicators differing. Picture it like a court case where the jury has to weigh all of the evidence presented by both sides and try to come to the best conclusion they can – all in balance and all things considered.

  • Hi Keith, I understand your components that make up your Bear o meter, I just can’t figure out how to read it? Is it after the purple V outline the next value is 6? I am used to seeing and arrow point to the value, what am i not seeing here on the bear o meter? Thanks!

    • Red = high risk (with 0 being the most risk)
      Yellow = neutral risk (the higher the number in that zone the lower the risk)
      Green = lowest risk (again, the higher the number the better- where 8 is the best it can measure)

      • Ned–it had been the same reading for many months, but per this blog, big change now–from high risk to low risk outlook

  • Obviously, this rally might not be across all sectors, Vanguard-style that invests in the broad market blindly, mechanically, no matter what, like a high-tide will bring to the top all floating objects up vs. a low tide.

    LNG is whittling down.

    Is it time to get out of energy ? (LNG, Pipelines, oil, etc)

    Inflation protected assets are King, as the Fed announced further hikes in rates, and it will continue doing its ravages. Wage hikes seem to want to continue. Labor demand was multiple fold higher than expected, which is not helping to cool interest rates or inflation.

    Is this a commodity rally only?

    • Gas certainly is looking oversold. We took a small “speculative” position for a possible oversold bounce but wont commit further yet. Overall, we like materials, have been light on energy but adding small amounts in specific stocks we like the look of .
      Longer termed cycles suggest commodities will do well – bumps along the way though


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