Bear Market is Starting
Look at the 20 year chart of the S&P 500. Even if the market rallies a bit further, we are clearly much closer to a top than a bottom. Despite the steep losses of 2015, the stock index is virtually at its all time high. The current bull cycle duration, at nearly 6.5 years, is already longer than the historical average. More likely than not, we are close to the end of the bull market. This is not yet a buying opportunity.
Obviously, it's impossible to call a precise top. However, there are indications that we are near one:
- The Shiller PE reached 27.0 and has been dropping in recent months
- NYSE margin debt hit an all-time high around the same time
- My Bull Index shows that global markets are the weakest since 2009
- Retail investors are now getting excited about stocks again
The lofty Shiller PE at 27.0 coupled with record margin debt is the set-up for a serious bear market or even a crash, not a mild correction. My Bull Index shows that global markets are now the weakest they've been at any time during the current bull cycle. This, along with the recent volatility and -4% days on the indices, shows that confidence and "willingness to play" are rapidly disappearing.
The recent enthusiasm of retail investors is icing on the cake; small investors love buying near tops. Within the last three weeks, both a family member and a friend have asked me to help them make new stock purchases. These people had not shown any interest in buying during the last few years.
What I'm doing
As I wrote in December, I've been boosting my liquidity and keeping lots of cash and t-bills. In 2015 so far, I have:
- moved my 401(k) out of stocks and into short term treasuries
- bought more CEF shares in CAD for gold/silver exposure