Indicator suggests “normal” risk/reward potential

December 16, 2013No Comments

 

Every once in a while, I like to check out my “Bear-O-Meter” for a risk/reward reading on the markets.

The Bear-O-Meter is comprised of: market breadth, a value rating, a trend indication, a momentum indicator, a seasonal input, and a contrarian sentiment indicator. A rating is assigned to each factor, the score is tallied up, and you get a reading of 0-8. A low reading suggests more potential risk vs. reward is present than normal on the markets, and a high reading suggests less risk/reward is likely present going forward.

My last post of this indicator on September 18th  (https://www.valuetrend.ca/?p=2457)  suggested  the near termed risk/reward had increased to a modest level of caution—the day after I wrote the post, the S&P began a modest 20 point decline over the next couple of weeks. Not much of a correction – which makes sense, given the reading was only modestly bearish at that time.

The current neutral reading suggests no greater than normal risk in the markets. Most factors within the formula remain in the bullish territory. The only caution flags in this reading were the value reading (high Shiller PE) and sentiment (a composite of mid-termed sentiment readings read somewhat excessive bullishness). Overall, The Bear-O-Meter reads 4 at this time, which indicates average risk/return potential remains in the market – at least for now.

Bear-O-Meter

 

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