Major sell signal for the S&P 500

We have expected a decline to occur of minimally 25% to be followed by rallies back up for three years. Half of all stocks have already been corrected 20% or more which classifies them as being in bear markets. Yet, the large cap S&P 500 has not been down much over about 12%…….Let’s also add that the “buybacks” occur in the large cap stocks giving support to their prices-that is $1.3 trillion in buying. That is $1,300,000,000,000 !

As well, Central banks buying shares has supported the market as well. However, it has created a situation where too many large cap shares were purchased at price levels that are selling far above reasonable valuations. Payback will come as it always does.

Pay attention! The U.S. stock market is now carrying a dangerous dollar value of over 150% of Gross Domestic Product; every time this had happened in the past, it has led to major bear markets. Recently officers and directors have been very heavy sellers with very little buying of their own companies’ shares. Too many gauges of value are at extremely high valuation levels that in the past led to brutal bear markets.

As always, profits should be taken and future entry “buying” points pre-set for buying during declines. One of the world’s most successful investors, the late John Templeton would often put orders in beforehand to buy during harsh declines. To John, bear markets were an opportunity to buy cheap; that opportunity will soon present itself again.

We focus on technical and cyclical indicators and while many have been warning of a bear market, the major indicator suggesting that a major bear market is soon arriving, gave its sell signal this week. It has not occurred since early 2008.  When it has occurred in the past, the average decline was over 30%. In the meantime, our indicators are very positive for the gold and silver mining stocks.