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 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.