Bear-o-meter suggests high risk

November 1, 20234 Comments

Long termed readers of this blog know what the Bear-o-meter is. For newbies- its a risk/reward score of between 0 – 8 assigned to the US market (SPX, specifically). The compilation is quantitative and binary. It reads 11 factors without emotion, discretion, or opinion. Every month, I note the Bear-o-meter score, so you can add this risk/reward tradeoff to your own analysis. If you do a search on this blog you will quickly learn that the meter has been quite accurate with its calls. If you want to learn how to construct & follow this compilation on your own, I disclosed the “secret formula” in my latest book, Smart Money/Dumb Money.

A high Bear-o-meter score means that reward is very favorable vs. risk. A low score means that reward is less favorable. It’s a “trading with the odds” tool – not a “market timing” tool. A score between 3-5 is considered “normal market risk/reward tradeoffs”.

The Bear-o-meter doesn’t predict pricing – that is, it does not suggest a target. It predicts the tradeoff of risk/reward, regardless of what might happen. I liken it to crossing a major interstate highway by foot. That’s a high risk activity – aka a “0” if you were to use a Bear-o-meter score. Still, you may make it to the other side unscathed. But that does not change the fact that it was a high risk activity. Conversely, crossing the road in a quiet community is a low risk activity. Call it a score of “8” in Bear-o-meter language. That said, a maniac high on drugs might come screaming around the corner and kill you with their car. That does not change the fact that it was a lower risk activity on a relative basis. Get it?

 

Where are we now?

On October 3rd (my last reading), the Bear-o-meter had moved down to a score of “2” from the prior score of “3” in September. This negative change in score correctly anticipated that risk was increasing. October certainly proved to be a bearish month.

Today, the Bear-o-meter score shows a plummet in score to a very high risk rating of “0”.

Craig and I were talking about this development. We noted that:

  • The 200 day moving average was broken, subtracting 2 points. Note that this is the ONLY indicator in the compilation that carries the influence of 2 points – the rest of the factors being a maximum of 1 point. Its important to note that a move ahead of the 200 days SMA, which could happen at any time, will add 2 points to the meter.
  • Two of the important breadth indicators – specifically cumulative moneyflow, and the Dow Industrials vs. Transports, subtracted another 2 points. As with the 200 day SMA, if the market starts seeing a broader scope of rising stocks – that will add 2 points back to the meter
  • Either or both of the above could happen at any time. We could move back to a neutral reading quickly. My point being: Things are very tentative right now.

Here’s the INDU/TRAN reading. Note the massive gap between the transports (black line) vs the industrial (red line). This is a classic Dow Theory sell signal. The chart is a bit busy, but if you take a moment to study it, my historic markings illustrate that divergence by the transports almost always spells trouble. I have tracked this chart for years (entire history not shown, as it makes current readings too compressed). My observations suggest that the INDU/TRAN moves provide an accuracy level that, while wrong on occasion, is more often quite predictive. Keep an eye on this.

Systematic investing works

If you follow this blog regularly, you know that I have been suggesting caution for the entire summer. In fact, months ago I suggested to readers that they might want to hold cash, as ValueTrend has. We’ve been hovering around 30% cash during this correction. We correctly anticipated the heightened market risk, and I’ve relayed those thoughts through this blog & my videos.

I’ve also been harping on the support levels near 4200 since early summer. We hit that point recently. In fact, it cracked 4200 briefly. As I write, the market appears to be above 4200. Will it hold? Is now the time to buy? Once again, we’re using the discipline I teach you through this blog, and through my Online Course, to determine when its time to get back in.

Its all about having a proven system. I’ve been doing this for 34 years (I suspect some of my readers were in diapers or public school when I was trading the markets). The system I teach works, and ValueTrend’s track record proves it. Tomorrow we report our numbers on the website. But I can tell you:  ValueTrend’s platforms have experienced much less than half the downside, even after fees, than the SPX and TSX saw over the past 3 months.

Once again, ValueTrend limited our clients risk, and kept their money safe.  Now, we are looking to enhance their long termed returns by acting on our systematic approach to re-entry the market. Honestly, folks. If you are not seeing the results that you want in your portfolio, you owe it to yourself to talk to us about ValueTrend’s portfolio management services. We look after household assets of $500k+. Here’s how to contact us. 

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4 Comments

  • Nutrien missed their EPS target… potash dropped from $633 to $250 per ton, in past months, even if sales went up 23% in North America. Was this kept in mind, when it was stated as a top pick on 2 BNN shows? I know Keyera however, another pick of yours, conversely has done great. NTR was simply a stinker.

    Reply
    • We were looking at an oversold situation. Our entry was $80. Craig is listening to earnings conference as I type–its not at a prior low (not down too much from our cost)—stocks move on forward view so we need to look at the chart, AND the guidance. Ultimately though, we cant tolerate a lower low from a technical perspective. We haven’t sold it yet–we have a 3% portfolio weighting
      And yes–thats a diversified portfolio for you. Some big winners, some big losers, some “meh” performers. The trick is to manage the overall risk.

      Reply
  • On yout latest appearance, I was energized by you standing by Nutrien..you as low as $70. For the decline to be reversed, potash as a commodity has to stop dropping. Belarus and Russia would need to stop dumping the commodity on world markets, Canada and those two exporting 80% of world production. Still, Canada fails to have the cozy relationship in BRICS, that Poutin has..Brazil and China being the main potash importers. Also, Trudeau had botched the relationship with India and China, part of BRICs obviously. It seems Trudeau and geopolitics is botching the prospects of Nutrien. If at least Belarus and Russia could be prevented from selling on works markets to BRICS…that won’t happen.

    Reply
    • Good points Mike thankyou – I will ask Craig to read your comment. Whatever the case – watching for final support to hold. If it rallied–who knows…double bottom? If not–sell.

      Reply

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