After seeing the S&P 500 drop over 50% in both the 2000-2003 and 2007-2009 bear markets, investors are understandably hesitant to redeploy their hard-earned cash back into stocks. Many assume stocks must be about to make a major top. Is there hard evidence to support that assumption? Are we nearing a major stock market top?
Are The Bears Justified Or In Denial?
This week’s video makes an unbiased comparison of 2007-2008 and 2013. If you want to know what to watch in terms of helping monitor reversal risk in the S&P 500, it is extremely helpful to study long-term correlations to the stock market. We have done that in excruciating detail. The charts covered in the video all have very meaningful correlations to the stock market.
Obviously, the best way to track the S&P 500 is to track it directly via price (no indicators or moving averages needed). However, as the video below shows, risk-on vs. risk-off ratios often provide warnings by peaking several months before a major stock market top, which is something that price alone cannot do. Price is unquestionably king and it carries the heaviest weight in our market model. But the following charts, taken as a whole, provide a comprehensive way to compare the market’s October 2007 topping process to early August 2013:
– S&P 500
– Long vs. short
– Stocks vs. bonds
– Junk bonds vs. Treasuries
In the coming days and weeks, we will continue to monitor our models, which include the charts above. You can check back in for updates via See It Market and Twitter: @CiovaccoCapital.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.