One of the first cautionary signals to emerge during the market’s two-year topping process was the failure of spreads on low grade corporate bonds to return to their early-2018 cycle “tights,” despite last year’s surge to new stock market highs.
We intentionally curtailed our discussion of stock market valuations the last few months to allow the “dead horse” to recover from the thrashings administered in recent years. Now we’re rested, refreshed, and ready to deliver a few more lashes.
The cyclical bear market appears to be bottoming, but that is only an opinion. Although improved, the Major Trend Index remains negative. Thus, we remain very cautious. We respect the numbers more than our opinion.
The stock market may be on the verge of 1982’s best buying opportunity, even though for the time being the caution light is on. Early Warning Index and Major Trend Index both Neutral now and 750-780 may be just around the corner, and, a “surprise” financial shock may no longer be a surprise.