Disclaimer

This blog is for educational purposes only

Before a Bear Market Arrives

***Warning: This setup is not meant to identify an exact top in SP500***
**Data on this Page is updated infrequently**
Before a correction/Bear market ensued in 1990, 2000, and 2007 all of the following happened

Jobs Market Deteriorated: 
**[Keep an Eye on these numbers, these are getting better and better]**
-"Trend" of 4 week MA of initial employment claims turned positive
-4 week MA of initial employment claims dipped below 300K and than broke above the trend line.

Economic Indicators Soured: [Bearish]
-"Trend" of ECRI's Weekly Leading Indicator (WLI) turned negative
- ECRI's Weekly Leading Indicator (WLI) broke the rising support line

Credit Markets Displayed Stress: [Bearish]
-St. Louis Financial Stress Index rose to 0.8 or broke above a tend line
(Chart updated after the close of  April  07,  2016)

Traders Became Defensive: [Bearish]
-Margin Debt penetrated the upper Bollinger's Band and fell back   
**[Rose above BB in April '15 and dropped under in May '15]**
-Various adaptations of Margin Debt fell below the support line

Consumer Confidence Deteriorated:
-Consumer Sentiment Index (University of Michigan -UM_CSI) began to falter and broke the rising trend line
-Consumer Confidence Index (Conference Board-CB_CCI) began to falter and broke the rising trend line

US Leading Indicator Deteriorated:**This is a lagging indicator due to 2-3 month reporting lag**
-US Leading Indicator fell below the support line.

Stock Market Breadth Deteriorated:[Bearish]
-Cumulative Advance decline line and Advance Decline Volume of NYSE (Common Stock only) fell below the support line
(Chart updated after the close of  March 30, 2016) 

Here is a table that lists the dates when various measures described above indicated a change in direction. Note many measures presented here are reported with a delay of some time as long as two months. "Date Point" is the date of as reported data. Reported is when this data actually became available. Another thing to note is that many of these measures are often revised. In this regard ECRI's WLI is the worst;I have seen it revised for 2-3 years, 6-12 months after the last reported data. So it is possible that in real time the above setups produced a signal at slightly different times. Consider this a limitation of this analysis.


How are we doing now?
Both sets are displaying warning signs!

As always, I am very interested in hearing your thoughts on this post.

DATA Sources:
http://www.businesscycle.com/
http://www.nyse.com/financials/1022221393023.html
http://www.finra.org/Investors/SmartInvesting/AdvancedInvesting/MarginInformation/p005923
http://www.FreeStockCharts.com
http://research.stlouisfed.org/fred2/ 
http://www.conference-board.org/data/consumerconfidence.cfm
http://www.sca.isr.umich.edu/

4 comments:

  1. Pedro at T-T wrote:

    BEFORE these corrections ensued?
    Could you please be more specific and report on say the first month in each year, by which all of these conditions were met?

    For example, are you saying that all of these conditions were met PRIOR to Oct 07?

    Thanks. And for the record, my longer term indicators still have us bullish, but it was close around 1650 before the bounce.

    ReplyDelete
    Replies
    1. Considering the delay in reporting of various measures used in this analysis, pinpointing a date is tricky. Nevertheless, I now have appended a table that may answer your question.

      Delete
  2. Interesting post and conclusion. Aren't some of the factors that you mentioned showing some of the initial signs of the deterioration that you said was important. For instance, look at the Michigan Consumer Sentiment survey or receding A/D line that is diverging from the daily new highs.
    I would be interested to hear if you think that some of these factors aren't aligning themselves in a way that could lead to a correction beginning in 3/4 months.

    ReplyDelete
    Replies
    1. For me this setup is the last line of defense before Bears take over. I don't know if this setup will trigger a sell in 3/4 months? But one thing I know for sure is that my intermediate term models will be on the sell side long before this will move to the sell side (a review of "Models Composite" should attest to this). Keep an eye on those.

      Delete