The stock market is in no man’s land as indicators signal split between bears and bulls


The stock market is in no man’s land as some bear market indicators flash a warning sign while others have not, according to a recent note from Ned Davis Research.

The investment research firm’s proprietary “Bear Watch aggregate” indicator has been on the rise in recent months as the stock market has sold off 10% from its late-July high. But not enough signals have been triggered to say definitively that another bear market is imminent.

“The warnings in 2022 were much more decisive,” NDR said, adding that while some have flashed, others “are far from signal levels.”

NDR’s Bear Watch aggregate includes a total of 10 gauges that monitor different elements of the stock market. Historically, when at least half of them set off a bearish warning, the median stock market drawdown was 20%.

That’s is on par with last year’s sell-off, when eight of the 10 indicators tracked by NDR raised bearish red flags.

Today, only two of the 10 are looking bearish. The first one flashed earlier this month when new lows in the stock market were reached by more than 20% of the markets in the All Country World Index.

The second was triggered in August when less than half of global composites traded above their 40-week moving average.

But other signs of an imminent bear market are not even close to flashing, according to the note, like the CBOE’s volatility index jumping above the 28.5 level. The VIX is currently at 19.67. 

Stock market price and breadth trends have also not yet confirmed an imminent bear market, according to NDR’s proprietary gauges.

“The indicator is currently far from a signal, consistent with other indications that the secular bull remains intact,” NDR said.

“The bottom line… is that the bear market risk has increased, but it is far from decisive enough to consider a bear market likely. If that remains the case, then it’s more likely that the excessive pessimism and oversold conditions will be followed by rallying within the continuation of the cyclical bull that started last October,” NDR concluded.

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