Bear-o-meter – Investment Analysis – June 2024 – shows high risk

 

The Bear-o-meter is an investment analysis tool comprised of 11 factors under the broad headings of Trend, Breadth, Seasonality, Value, Breadth-momentum, & Sentiment. I take a reading of this indicator early each month to give us a picture of the relative tradeoff on the S&P 500 of risk vs. return probabilities.

The meter can read from 0 to 8, where 0 is the most unfavorable risk profile (high risk), and 8 is the most favorable risk profile (low risk). It is subdivided into 3 segments – which illustrate investment analysis zones with the potential risk/return trade off of the market. You can see this on the diagram below. Note that the meter provides the most accurate signals when it is at the extreme (close to 0, or 8) – aka well into the first or third segment.

 

Bear-o-meter shows high risk: June 2024

Most of you guys know all about my Bear-o-meter report. Read my book Smart Money, Dumb Money to learn the entire formula for this risk reward tradeoff score. You can check the history on the blog–if you’ve been following it for a few years, you will know that its pretty good at picking inflection points when it sits deeply within the bear (0-3) and bull (5-8) sectors on the diagram below.

Drumroll please…

This months score has pulled back from a score of “3” in May to a much more distressing “1” as of today’s data. That’s just one point off of the worst score possible. As an example – the score of “0” was given in early April 2022, just before the market dropped over 20% that year.

We’re not quite at “0”, but a “1” is certainly a high risk, medicocre reward tradeoff. VALUETREND went a bit over 20% cash last week as we started seeing these factors move bearishly.

Where did the meter lose the 2 points?

First, we saw a divergence in breadth on the NYSE Advance/Decline line against the SPX index. The AD line (black) broke its May lows, while the SPX has not done so. That chart is below:

Investment Analysis chart

The other new signal (dropping a point) was the Smart $/ Dumb $ indicator. Again, read my book Smart/ Dumb Money to learn more about that index. It was neutral when I read the score last month. It reversed suddenly by today–which is a real tale of how quickly Smart Money will move when they get nervous.

Investment Analysis chart

The only other negative score this month was the DJ Industrials vs. Transports negative divergence. I wrote about that yesterday.

Investment Analysis Conclusion

The meter suggests that risk is skewed to the negative this month. We upped our cash a bit last month, and will raise more if the SPX breaks 5200, as discussed in past blogs. Its probably worth noting that June is one of the seasonally weaker months of the year, so you may see much of the risk appear over the near-term. Stay tuned and I’ll keep you up to speed as best I can.

 

Interested in past Bear-O-Meter investment analysis posts?  See the history here.

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