The Stock Market is Ignoring the Indicators

The stock market is essentially a futures market for equities. The health of commercial and consumer debt is a fundamental measure of the future health of an economy. The chart below shows how the delinquency rate on both commercial and credit card loans tends to rise ahead of recessions. The market is ignoring the fact that both types of delinquency have been on the rise since 2015.

The average price-to-earnings ratio (PE) of the S&P 500 is 15.62; at present, it is 26.20. The market seems to be ignoring that pricey fundamental fact.

Price-to-Earnings Ratio:


The price to sales ratio is 2.00, which is a fifteen-year record high. The market is ignoring this also.

Price-to-Sales Ratio:


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The Rydex Bear/Bull Asset ratio made a 20-year low recently (chart below); bull funds have five times more money invested than do bear funds. This demonstrates an extreme level of optimism which has corresponded to market tops in the past. The market topped-out after the Bear/Bull Asset ratio spiked-down in 2000. The SPX continues to rally, however.

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Yesterday’s gold update explained our view of gold at the moment, so we will only add the commitment of futures traders (COT) data which was not available at the time of publishing.

The COT data from Jan. 2, 2017, shows a very slight change to the positions of traders (chart below): commercials went from 70% to 69% short: large speculators went from 66% to 65% long: small speculators went from 65% to 64% long.

There are two take-aways here. First, is the reduced rate of change in positioning, and second, is the fact that the positions are still at historically high levels. Bottoms in the gold market tend to occur when speculators are almost absent from the market, or short the market. This is not the situation at the moment, so we maintain further downside for gold.

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