31 Jan Stock Market Indicators – January 31st, 2016
Stock Market Indicators
Here are the latest readings from our stock market indicators. After the short / medium term bottom was found on 1/20, the stock market has seemed to have slowly gotten its feet back under it.
The “shakeout” day occurred last Wednesday after the Fed released its latest minutes revealing no U-turn from the interest rate hike plan for 2016. This panic selling failed to reach the panic selling level (judging by the VIX) found on 1/20, and served to shake out the last of the weak hands holding shares. I’m not 100% confident things are going to return to business as usual in this 7 year bull market, but we did find a tradeable bottom as long as we held through the weakness on Wednesday.
Surprisingly, we’re still not at an overbought level in the short term. At 72%, we’re definitely getting to a level where making further purchases is getting less wise if you want to be up on those trades in the coming days. However, at 32% on the medium term indicator, the odds of a decent trade for a few weeks are fairly high. On to discuss the “long term” indicator.
If you notice, we now have updated software which gives us more historical data than we had with our Excel sheet we’ve used for the past few years as a means of keeping costs down. The software used below allows us to show what our indicators showed in 2009. That’s the good news. The bad news is that during a bear market such as the one in 2007-2009 is that our long term indicator reaches terminally low levels of around 0% prior to identifying a true long term, recession bottom. This actually makes sense as all stocks will be in downtrends at the bottom. The bad news is that despite our recent weakness of August 2015 and January 2016 is that we’re still at 37% of stocks in long term uptrends. While this level is “oversold” compared to the bull market levels of the last 7 years, we are not “oversold” when compared to a true bear market.
We don’t yet have 100% indication we’re falling into a recession. That means that we must exercise caution, but we shouldn’t yet “throw the baby out with the bathwater” on our positions. Our recommended exposure is neutral. 50% cash equivalent investments, 50% high(er) risk.
Recessionary signs: Manufacturing PMI in contraction, ECRI WLI at -.6%, Monetary Base Growth < 0% at -5.28%
Non-recessionary signs: Yield curve remains > 0 at 1.2%, Non-manufacturing PMI still indicating growth albeit slower growth, Conference Board LEI still > 0% at 1.1% six month rate of change, Initial Claims remain less than 300K
You can read about these indicators at the Federal Reserve’s site here.
Please see our latest readings from our stock market indicators below.