The above two dials provide a snapshot of our market view and attitude to risk.
Bull/Bear Market
The Bull/Bear Market indicator improved to 60% from 40% last week.
Heavy truck sales increased to 42,240 units in November, while October sales were revised up to 38,550 from the earlier reported 32,490.
Just two of the five indicators now signal 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 continues to rise, reaching the 97.95 percentile compared to 97.83 last Friday. This warns that stocks have the potential for large drawdowns.
Conclusion
The bane of forecasting is data revisions. The collection of data for October heavy truck sales may have been impacted by hurricanes in the Southeastern region of the US.
We are again at the border between a bull and bear market, with our bull/bear indicator increasing to 60%.
However, we do not plan to increase exposure to risk assets because stock pricing remains 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.