Bear-o-meter – Investment Analysis – May 2024 – continues to read some caution

 

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 continues to read some caution

May read as “3. That’s on the cusp of higher risk – yet not in the “run for the hills” area. A reading of 3 is the most frustrating level. It suggests a somewhat higher level of risk that may or may not materialize – albeit still a caution signal. April was a negative month.  So the meter was correct in warning of slightly higher than normal risk potential.

Where does the investment analysis Bear-o-meter sit now?

Bear-O-Meter - Investment Analysis scale

Its still at a “3”. A few indicators within the compilation changed hands, and most stayed the same. A very brief recap of the findings:

Positive

Breadth has improved. The NYSE Advance Decline line had a positive bump against the SPX, meaning that the larger index of stocks (NYSE composite) had lots of rising stocks last month. Here’s the chart. Note the nice move by the black line which is the AD for NYSE.

Investment Analysis

Also positive over April were the NHNL breadth momentum indicator, which moved from negative in April to neutral in May.

Negative

The market moved below its 50 day SMA on Friday, which lost it a point over the positive score in April. I note that I always use the close of the market for the meter’s readings.  At the time of writing (10am Monday May 6), the SPX is currently back above its 50 day SMA – as seen on the chart below. Can’t say for sure if it will hold, so I will keep the score at “0” for this months report.

SPX Bear-O-Meter - Investment Analysis

Seasonality has entered into its weakest period now, which creates a loss of 2 points for the meter.

Final investment analysis thoughts

The VIX is still in neutral territory, although it is declining near its “complacency” point (its now 13.5 vs. the 12.5 complacency level). More importantly, you’ve probably read my previous ponderings on the potential for the current period to be a bit like last fall.

There, the SPX fell in September, rallied, then did a final low in October before that resulted in a market bottom:

  • The VIX signaled a “complacency” sell signal early September near my trigger level of 12.5,
  • A spike in late September to about 19,
  • A pullback in early October to around 16.5
  • Finally, a massive move to a high of 21.

Recently we saw:

  • A low of 12 in December, and a revisit at 12.5 in early April.
  • A spike to 19
  • A pullback to 13.5
  • Which begs the question: is the next step a final high closer to 20?

 

 

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

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