The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.
Bull/Bear Market
Our Bull/Bear Market indicator remained at 60% this week, with two of the five leading indicators signaling risk-off:
We have revised our Heavy Truck Sales indicator to use a 12-month moving average of unadjusted data from the BEA. Recent data revisions were due to adjustments to seasonal factors provided by the Fed. Switching to a 12-month MA eliminates the need for seasonal adjustments.
The graph below compares a buy-and-hold strategy for the S&P 500 (green) to an active strategy (purple) that switches to AA corporate bonds when the Heavy Truck Sales indicator signals risk-off (white bars).
The graph below shows an active strategy (blue) that switches to gold when the Heavy Truck Sales indicator signals risk-off (white bars).
Stock Pricing
Stock pricing eased to 96.03, compared to 95.04 three weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.
Conclusion
We remain on the cusp of a bear market, with the bull-bear indicator at 60%. Stock pricing remains extreme, warning of the risk of a significant drawdown.
Acknowledgments
- Multpl.com: Shiller PE Ratio
- S&P Global: S&P 500 Sales and Earnings Estimates
- University of Michigan: Survey of Consumers
- Federal Reserve of St Louis: FRED Data
- Bureau for Economic Analysis: Motor Vehicles Data
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
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.