Market Selloff – Beginning Of A Bear Market?
This market selloff is more than a selloff, it could be the beginning of a full blown market crash according to my proprietary Market Timing Indicators.
Before I tell you what my MTI sees, let me give you a little background on it. My Market Timing Indicator can be set with settings that, if used with an ETF like SPXU or TZA, will profit when markets selloff. I call this one my “Bear Settings”.
The other set of settings, if used with ETF’s like UPRO or TNA, will profit when markets rally. I call this one my “Bull Settings”.
Now if you look at these two settings, compare them side by side, one should be going up and one should be going down. That indicates the type of market we are in. Eventually the markets shift from Bear to Bull, or Bull to Bear. When that happens, then the losing setting will now become profitable and vice versa. This should make it easy to spot a major reversal in the markets.
Take a look at the above picture. The bars in brown represent the gains/losses of the Bear settings. The blue bars are the returns for the Bull settings. The ETF’s used for the returns here were TNA and TZA. Since these two ETF’s were not available to the public till late 2008, I have to start there with my settings.
Market Selloff In Late 2008
If you look at a chart of the S&P 500 you will see that the markets were still selling off in late 2008 and the alerts from the Bear settings would have produced 766% gains using TZA/TNA (as the markets fell). The following 12 months saw a 95% gain (as markets bottomed out). Then over the next six months, the trades would have lost 33%. Apparently the bear market is over.
To confirm this, we check the Bull settings. During the market selloff in late 2008 and 2009, a portfolio following it’s signals would have lost 83%. The following twelve months got better, a loss of 70%.
Then something new happened, for six months it showed a profit at the same time the Bear settings was showing it’s first loss. Could it be a market bottom?
Market Sell Off Stops And Rally Begins
We all know what happened next. The market selloff had stopped and the markets began a rally that lasted another 4.5 years. Anyone trading the signals from the Bull Settings saw gains of oveer 2000% in their portfolio.
Since that reversal 4.5 years ago, the Bear settings have NEVER outperformed the Bull settings over a six month time frame.
Take a look at the chart on the right above. It’s just the exact opposite of what happened during the market bottom. The Bull settings profited for two years or more while the Bear settings lost. Now the switch occurred and for the first time in five years, the Bear settings profited while the Bull settings lost.
Update May 8 2016: Since this was written, the markets did not have a major crash. Only the Russell 2000 lost more than 20%. Other indices lost 8% to 10% before rebounding. On April 20, 2016 my Market Timing Indicator once again turned Bullish. The Bearish trend was over after only six months.