Bearometer revisited

I’ve presented a multi-factor collaboration of indicators I follow in the past on this blog. Since my last mention of the “Bearometer”   I’ve adjusted the compilation to include a couple of new indicators. But the basic mix of WHAT I’m trying to follow remains the same. That is – I want to follow trend, valuation, sentiment, breadth, and seasonality.

I always get a kick out of the players in my industry who try to make the system they follow sound exotic and unattainable by common folk. They do this by calling their system “proprietary”. Seriously, folks, there’s not much to be “proprietary” about in this business. We deal with four not-so-exotic factors: price, momentum, volume, time. That’s it. All technical indicators are comprised of one or more of those four factors. Sure, I may change a moving average to watch price trend differently than you  (e.g.—say I use a 205 day MA—you use the common 200 day MA—mine is sooooo much more exotic and proprietary than yours!). Perhaps I combine that incredibly exotic 205 day MA with some other stuff in a different way than others do—gosh I’m smart!

Seriously—everything I or anyone else use in TA contains those 4 factors. And that means we can all look at the same stuff – it’s how we interpret it that counts!

 

OK, so enough of that rant. Here are the exotic, never before seen factors I use (grin!)—please destroy this page after reading it, Ethan Hunt (Mission Impossible). Please note that I am not providing all of the exact breakout levels for these indicators – but you can study them for yourself to get some feel for how they measure risk/return potential. Remember- If I told you my secret levels, I’d have to kill you.

mission impossible

 

 

Here goes:

 

Trend: 50 day MA, 200 day MA – above or below, plus slope of 200 day MA

Breadth: AD line with a 40 week MA above or below, Divergence (Y or N) vs S&P500, INDU vs. TRAN

Valuation: PE ratio

Sentiment: Smart/Dumb $ spread (www.sentimentrader.com), % above 50 day MA, New High New Low line, Put/Call ratio, VIX

Seasonality: Best 6 months, worst six months

 

Each of the above factors gets a score depending on their respective levels vs. historic buy/sell/ neutral zones. I look for a total score to get a feel for risk and return. The indicators are largely big-picture and provide a longer termed heads-up if they are – on the whole, indicating extreme buy or sell levels.

Right now, we are “neutral”—at least, as of March 18, 2016 when I took a reading. However, I did note that quite a few of the indicators were closer to sell zones than they were a month ago. Specifically, the Put/Call ratio, the % stocks above their 50 day MA, New high/low indicator and smart/dumb spread are all approaching a higher risk zone—although officially not in their respective danger zones yet. In a nutshell, the market looks to have a very short termed life of upside left in it- unless it peels away some of the overbought conditions in the coming days.

 

Bearometer 2

9 Comments

  • “In a nutshell, the market looks to have a very short termed life of upside left in it”

    What are the odds of re-visiting the Jan/Feb lows by mid-summer? I thought about buying some high dividend ETFs back then, didn’t do it, and have been kicking myself since.

    Reply
    • Andy–while we have to “go with the flow”–ie if market makes a new high (takes out 2135) then its not likely we revisit the old lows. However, if that old high cant be taken out soon-ie before the summer-the odds are very high for a much lower point on the markets than where they are now!

      Reply
  • Keith, I am wondering what you think of REGN at this point. I was stopped out at $360.00 This stock is on its 3rd day of gains and the stochtastics has hooked up. Is this a buy yet?

    Reply
    • Cathy–I prefer not to answer individual stock questions, unless they have direct relation to the blogpost–you can however submit this question to BNN for my next show

      Reply
  • Keith,
    Cool meter. Without revealing the indicator levels you watch for (don’t want to be killed), can you say what weight you give each of the indicators that make up the Bear-O-Meter or are they equally weighted?

    Generally the short term trend remains up and the breadth strong. The short term trend is stretched though and resistance levels are fast approaching. Seasonality is still positive at the moment, but election cycle is a concern. The smart/dumb money spread is getting a bit low and starting to be a concern for me. So just wondering how much weight to place on the smart/dumb money confidence spread in particular?

    P.S. The pros/public money flow (theuptrend.com) does not indicate that the pros are in control which is a problem for a sustained rally.

    Reply
    • Hi Ron-it is complicated, and I have been in the midst of changing the ranking system–so the following are “interim” comments until I change things -yes some indicators receive higher weighting s (eg seasonality can be a bigger weighting –up to 2 points–than say whether the market is above 50 day MA). The 200 day MA gets a higher rating of up to 2 points, vs. the 50 day –which can only get a max of 1 point. The reason is obvious (big trend is seen on 200 day MA—which is more important than what the short MA is doing).
      Sentiment via smart/dumb ratio gets up to 1 point, but 2 other sentiment indicators – specifically VIX and Put/Call also get up to 1 point each (which can be a -1, a 0 or a + 1). So all in, sentiment can have 3 points influence on the scale, which is relatively high. Trend gets up to 3. Breadth gets up to 3. Momentum, which i measure as an oscillator for the purposes of this study (NYHL and % above 50 day MA) get up to 3 points.
      Obviously my new scale is no longer just out of 8. The original bunch of indicators was: A/D, Seasonality, PE, RSI, MA and a broad sentiment composite reading for a total of 8 points. I had back tested it and it was effective at making forward (leading) calls.

      The new indicators add to 13 points now, so I have to mess with that a bit further to simplify the scale, yet keep all of the new indicators in there. Independently I use these indicators and know the levels where they work–I now have to quantify a bit more before putting the arrow on a chart for a precise reading. That is why I will now say the scale leans towards the neutral/bearish side, but I don’t really want to give its precise reading.
      Whew–long reply–hope it helped.
      Its a project I’m upgrading on all the time.

      Reply
      • Hi Keith. That’s very insightful, i appreciate your detailed reply. Markets are kind of at a tipping point but not seeing definitive signals yet, so am always looking for an edge. The learning never ends.

        Reply
  • hi Keith , do you use any fundamentals on top of your technical point scale at all and whats your cash % position at the moment 🙂 ?

    Reply
    • Part of the model described incorporates the current trailing PE ratio of the S&P500–otherwise, we use fundamentals on all individual stocks we buy on top of the technicals. Tahts why we are called ValueTrend (value, plus trend analysis)
      I am 35% cash now.

      Reply

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