Don’t just do something. Sit there!

I’ll admit I stole todays blog title from another blog I was reading. But I thought the title appropriate, given the Ying and Yang of stock markets right now. Technically, as I discussed in my last blog, markets are parabolically off the trendline and by most measures overbought. Yet, you cannot argue with the trend. What to do, what to do? Perhaps the answer is to sit there? Lets explore that thought today.

Today is the monthly Bear-o-meter report.

Todays reading is “3” on the Bear-o-meter.

Las month, the meter correctly signaled a neutral score of “4”. The market went up, albeit with some drastic shifts in sector strength. As you know, I have been predicting those shifts (materials, energy, value) would happen. This month, the meter lost a point, bringing the score to “3”. The point was lost though a breadth-momentum indicator.

Below is the chart of the % of SPX stocks over their 50day SMA.  Like the New High/ New Low indicator on the broader NYSE (which was bearish into the end of March,  reversing to neutral at the end of the month), both are breadth indicators. We like it when breadth (strength) expands through more stocks on the index.  However, when these indicators get too high (or too low), it can indicate a fast moving market –too bullish, or too bearish. The % of stocks over their 50 day SMA’s is above my “overbought” lines, as you will see below.

% SPX stocks over 50 day SMA 

Ying and Yang of stock markets - spx 50 day

 

Ying and Yang of stock markets – NHNL for NYSE

Again, the NYSE NHNL was briefly over its overbought level before it reversed into the neutral zone. It didn’t cost the Bear-o-meter any points, but I thought you’d be interested in seeing how close it was to doing so.

Ying and Yang of stock markets - NHNL for NYSE

Conclusion

As the diagram at the top illustrates, “3” is borderline the higher risk zone for the market. This is why the Bear-o-meter signals a Ying and Yang of stock markets this month.

  • The Ying: The reading of 3 is on the cusp of the danger zone.
  • The Yang: The trend of the market continues to be up.

All of this is suggesting we keep a cautious eye on the markets, holding a little cash,  and pay attention to the current rotation OUT of tech, INTO materials, energy and value plays. We need to stay invested (Ying), but are still smart to hold some cash, and focus only on the best stock sectors and best Canadian ETF’s covering the new favored sectors (Yang).

FYI- we are sending out our newest VT Update newsletter today. In it, we look at the Shiller CAPE market valuation indicator, and why it suggests caution.  We also address the current sector rotations we are observing. You can ensure you get a copy of the newsletter whenever its published, and subscribe to this blog, by clicking here.

Behavioral finance

I’m doing a free webinar with the MoneyShow Wednesday, April 17, 2024, 10:40 am – 11:10 am EDT.

I’m covering my favorite topic – contrarian investing and behavioral finance.  I wrote my thesis on this subject when applying for my CMT designation 24+ years ago, and I’m still studying this fascinating subject. The webinar will draw from my most recent book, Smart Money/ Dumb Money, and I promise to inject some humor into this fascinating way of discovering market risk / reward tradeoffs.

Here’s the link to register. 

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