Stocks Continue To Walk A Fine Bull-Bear Line
We often refer to the market’s bull-bear line of demarcation. When the market hovers in bull market territory, but just above bear market territory, the risk-reward profile of stocks can shift rather rapidly in either direction. The market remains bullish currently, but has little room for error from its current position.
In the chart below, green is best, yellow is neutral to a little concerning, orange is concerning, and red represents an unfavorable risk-reward environment from a historical perspective. The table below still contains quite a bit of green. However, the one to three month outlook remains uncertain. When BMSI scores fall into negative territory, the market’s historical risk-reward profile becomes unfavorable. Just above the zero line for BMSI scores, the profile is quite favorable.
The bottom line is we need to remain patient and nimble in the current environment. The markets are leaning bullish, but the outlook remains very fragile.
