Today we will do our monthly look at the risk/reward profile of the major US S&P 500 index. Before that – a quick reminder that I am presenting on the MoneyShow webinar at 1:00 PM EST. The topic is “Contrarian Investing” – and I spend a bit of time framing the subject with some idea on how to critically view your own biases or instinctive herd behavior. I hope you can make it. Here’s the link to sign up for this free event.
OK, on with the show.
The title of this blog says it all. The Bear-o-meter is bullish, sitting at “7” out of a potential uber-bullish potential of 8 – per the diagram above. That’s high, and, if you will forgive the poor attempt at poetry, time to buy. This, after last months reading of a dead-flat risk/reward market profile. A few of the indicators moved from outright bearish to positive or neutral. For example, the Smart Money/Dumb Money compilation by Sentimentrader.com moved from bearish to bullish.
The Put/Call ratio moved from bearish last month, to neutral this month. One chart that surprised me was the rapid turnaround for the number of stocks on the NYSE that had been trading at new highs. This indicator was showing a “near” overbought level last month. Although the current level of 110 net new highs is a neutral reading, I want you to take note of the very recent bullish signal it gave in the past few days. Had I taken this reading yesterday or the day before, the Bear-o-meter might have signaled an outright “Back the truck up and buy stocks” level of 8!
You don’t get many of these high 7 or 8 level signals from the Bear-o-meter, folks. The time to buy is when the blood is running in the streets, said Barron Rothschild, and now is looking like one of those times. If you’ve held cash, now is the time to start legging in. Keep in mind that the Bear-o-meter isn’t a short termed timing tool, but it certainly can give us a reading of potential risk/reward for the coming months. We’ve been 10% cash coming into the recent correction, and will be deploying that near-term.
Which sectors are you deploying your cash?
And Merry Christmas
Keeping my metals, materials and oil and gas exposure – outlook is for 12 months, not worried about neartermed COVID selloffs in those areas- we thionk we are in a cyclical commodity bull that will run over the coming 1+++year(s). Added to a couple of “go outside” type stocks recently, generally holding stocks that are seasonally good and hopefully benefitting from rising rates–financials in particular. We do have a bit of staples – despite that they do worse in rising rates, but many of these have accommodated for the inflated material costs and labor by raising prices. So its kind of a mixed bag.
If you subscribe to the VT update newsletter, we will be sending something out on Monday that might help.
I also did a video on oil that will be posted by Monday I expect.