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Fri Aug 24, 2018, 09:15 AM

The stock market's latest sell signal has happened only 5 other times since 1895

Would you be interested in an indicator with more 100 years of history, an excellent record at calling multi-generational tops in the U.S. stock market, and which has just flashed only its sixth sell signal since 1895?

The “Sound Advice Risk Indicator,” the brainchild of Gray Cardiff, editor of the Sound Advice newsletter, is derived from the ratio of the S&P 500 to the median price of a new U.S. house. For the first time since the late 1990s, and for only the sixth time since 1895, this indicator has risen above the 2.0 level that represents a major sell signal for equities. (See accompanying chart).

Over the 20 years through July 31, for example, according to Hulbert Financial Digest calculations, Cardiff’s model portfolio has beaten the S&P 500’s total return by 2.4 annualized percentage points.

It’s also worth emphasizing that Cardiff’s indicator does not represent an after-the-fact retrofitting of the data to coincide with past major stock market peaks. On the contrary, he has made this indicator a centerpiece of his newsletter at least since the early 1990s, which is when the Hulbert Financial Digest began monitoring its performance.

The investment rationale underlying this indicator, according to Cardiff, is that it “measures the struggle for capital” between the two major asset classes that compete for capital at the riskier end of the spectrum — stocks and real estate. When the indicator rises above 2.0, he argues, it means that the stock market has absorbed “a larger proportion of available investment capital than economic conditions can justify” and, therefore, it is in “imminent danger of falling.”

At: https://www.marketwatch.com/story/the-stock-markets-latest-sell-signal-has-happened-only-5-other-times-since-1895-2018-08-21



The Cardiff Index over time. A pretty good record, though it's worth noting it couldn't predict the 1974 sell-off or the 2008 disaster.

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Reply The stock market's latest sell signal has happened only 5 other times since 1895 (Original post)
sandensea Aug 2018 OP
Bernardo de La Paz Aug 2018 #1
Squinch Aug 2018 #2
sandensea Aug 2018 #3
Squinch Aug 2018 #4
sandensea Aug 2018 #5
Squinch Aug 2018 #6
sandensea Aug 2018 #7

Response to sandensea (Original post)

Fri Aug 24, 2018, 09:50 AM

1. Crappy indicator. Set the bar 5% higher and only two signals in 120 years and not now.


Personally I think the market is due for an extended bear market, not steep but long. However, tRump may take actions that precipitate a sharp drop which would shorten the bear.

It could make new highs in the short run (very close on SP 500), but it doesn't have the momentum it had in January.

It is important to note that the stock market is only secondarily connected to the economy in terms of both reacting and influencing. The stock market cares first and foremost about profits (and hence taxation of profits).

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Response to sandensea (Original post)

Fri Aug 24, 2018, 10:20 AM

2. The graph suggests its saying 2008 was a medium or low risk zone for stocks.

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Response to Squinch (Reply #2)

Fri Aug 24, 2018, 11:18 AM

3. Sure.

I made a note of that in the caption under the graph.

The index seems like a good rule of thumb (4 out of 5) - but is not entirely reliable.

Still, with Jabba-the-Trump and his kleptocrats in power, anything could happen.

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Response to sandensea (Reply #3)

Fri Aug 24, 2018, 11:20 AM

4. I do agree there is a crash coming. I don't know how it could be avoided.

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Response to Squinch (Reply #4)

Fri Aug 24, 2018, 11:23 AM

5. God help us all.

Do watch your investments next month.

This could be a September to remember.

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Response to sandensea (Reply #5)

Fri Aug 24, 2018, 12:17 PM

6. I freaked out and got out last February. So far, it's wavering around the same place where I got

out so I haven't lost anything and I've saved myself a lot of worry.

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Response to Squinch (Reply #6)

Fri Aug 24, 2018, 02:06 PM

7. +1

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