The above two dials provide a snapshot of our market view and attitude to risk.
Bull/Bear Market
The Bull/Bear Market indicator fell to 40% last Friday from 80% on November 9th.
The most recent bear signal is heavy truck sales, which plunged to a seasonally adjusted 32.5 thousand units in October 2024 from a peak of 46.1 thousand in May 2023.
There are now three of five indicators signaling Risk-off:
Stock Pricing
The Stock Pricing indicator compares stock prices to long-term sales, earnings, and economic output to gauge market risk. We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile.
Stock pricing remains in the extreme range, at the 97.83 percentile compared to 97.67 last Friday, warning that stock prices have the potential for large drawdowns.
Conclusion
We are headed for a bear market, with our allocation to risk assets declining to 40%.
Stock pricing is also extreme, warning of the potential for large drawdowns.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.