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Major Bank Indicators Signal Bear Market Trouble Ahead

This indicator, designed by Goldman Sachs to signal bear market risk, is at its highest levels from the last 50 years. It is based on measures of equity valuation, growth momentum, unemployment rates, inflation and the yield curve. It attained peaks towards the end of the internet bubble and near the end of the housing bubble. The gauge often precedes a bear market but is sometimes indicative of a prolonged period of low index returns.

Raging Bull Chart

Another metric on investor behavior is the Haver Analytics/Citi Research Panic/Euphoria model. The model relies on their Market Sentiment Composite. It is intended to track the mood of the investor base and is used as a contrary signal. Note below that forward returns based on euphoric readings, are low, meaning that the market tends to fall or tread water after the indicator breaches the upper threshold.

 Investors have returned to favoring growth stocks.

Investors have returned to favoring growth stocks. July appears to have been an aberration in that growth characteristics lagged. Through August and into the first week of September, companies with high forecast growths are leading the market again.


John Del Vecchio

About John Del Vecchio Author of Rule of 72: How to Compound Your Money and Uncover Hidden Stock Profits and What’s Behind The Numbers: A Guide To Exposing Financial Chicanery And Avoiding Huge Losses In Your Portfolio, John is a forensic accountant at heart. Standing on the shoulders of the great David Tice, James O’Shaughnessy and Dr. Howard Schilit, he built a framework of algorithms and a multi-factor grading system that has made him one of the more successful short-sellers around. John graduated Summa Cum Laude from Bryant College with a B.S. in Finance and was awarded Beta Gamma Sigma honors. He earned the right to use the Chartered Financial Analyst designation in September 2001.

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