Many of you have been following my “Bear-o-meter readings for several years. I’ve covered its methodology in the past, and encourage new readers to go to the search engine on this blog and type in “Bear-o-meter” for greater explanation. You’ll also find past readings of the compilation. As always, I like to point out that the Bear-o-meter is NOT a market timing tool. It is a risk vs reward measurement. Your market entry/exit decisions, like mine, should not be based on Bear-o-meter readings. Use the readings as you would a weather report. Meteorologists like to give us the “POP” (Probability of Precipitation). You don’t necessarily cancel the picnic just because there is 40% chance of rain. Or even 50%, 60% or 70% chance of rain. After all, the rain may not come (60% POP = 40% chance of no rain!). Further, the rain may be just last a few minutes, or it may be a light rain that won’t wreck your day. A low Bear-o-meter doesn’t mean run for the hills. But you might want to bring an umbrella, so to speak, by reducing some of the risk in your portfolio. Just in case!
The Bear-o-meter gave us a reading of “1” on May 17, 2017. Some of the factors have changed recently. The current ranking, as of Friday June 9th, is now “3”. That still keeps us in to the “higher risk” zone for the markets, but the move up tells us that markets are less risky than they were just a few weeks ago.
For those interested, we’ve had a positive movement on the Advance Decline levels (this breadth indicator is no longer diverging with the S&P 500). That, and a return to neutral on the Smart money/ Dumb money spread from a prior bearish reading. On the negative side, one of the other sentiment readings I look at, the Put/Call ratio, is now in my bearish zone.
All in, the AD line and Smart/Dumb readings added 3 points back to the indicator, but the Put/Call ratio move subtracted a point, giving us a net 2 point positive move on the Bear-o-meter. Thus, it went from a reading of 1, to a reading of 3.
As you can see on the diagram, this puts us at the entry level of “greater risk” for the markets, but it’s gone from being a big negative, to more of a minor negative for investors.
Bring a light duty umbrella for your portfolio. You probably don’t need to bring the full rain suit for the time being. But keep an eye on those dark clouds. This kind of weather can change quickly. Just ask a westerner about chinooks. They’ll tell – things can change!