A Monthly Signal Review For The Market

With the month of February now officially in the books, we can take a look at our long-term monthly indicators to see what they are telling us now.

Is the bull market back?

That’s the answer we all want to know.

Each week on RIA PRO we provide an update on all of the major markets for trading purposes.

However, as longer-term investors and portfolio managers, we are more interested in the overall trend of the market. While it is fundamental analysis derives “what” we buy, it is the long-term “price” analysis which determines the “when” of the buying and selling aspects of portfolio management over the long-term.

For us, the best measures of the TREND of the market is through longer-term weekly and monthly data. Importantly, when using longer-term data these signals are only valid at the end of the period. It is not uncommon for signals to be triggered and reversed during the middle of the period which creates “false” signals and poor outcomes. Since we are more interested in discerning changes to the overall “trend” of the market, we find monthly indicators, which are slow moving, tend to reveal this more clearly.

In April of last year, I penned an article entitled “10-Reasons The Bull Market Ended” in which we discussed the yield curve, slowing economic growth, valuations, volatility, and sentiment. While volatility and sentiment have gone back into complacency, the fundamental and economic backdrop has deteriorated further. Had you heeded our warning then, you could have saved yourself some pain.

As of February’s end, despite the recent rally over the last two months, the market is still 4.8% lower than the previous peak. It also remains marginally lower than the January high. Despite the 12.5% rally over the last two months (open to close), the rally has only repaired the damage of the December decline.

(Fun with numbers: it took a 12.5% advance to repair a 10.2% decline. This is why measuring performance in percentage terms is deceiving.)

More importantly, note the MONTHLY SELL SIGNAL registered in the bottom panel of the chart above.