We Still Have Plenty of Upside Ahead in Stocks

I could tell the crowd was already hostile toward my ideas…

I gave a speech last week, and I told the crowd what my “early warning” indicators are showing me about the markets right now.

Let me be clear…

These early warning indicators are not “sell now!” indicators. They simply tell us to start being cautious – that the stock market may peak in the coming months.

So what are they saying today?

The answer is simple. But first, let’s talk more about how I use them…

I laid out five objective, early warning indicators for my subscribers in late 2017. Putting them out there was a bit of a risk… You know I’ve been bullish for years on the stock market.

What if my objective indicators said it was time to be cautious – and I disagreed?

Still, I knew it was important… because these signals are so powerful.

The basic idea is this: It’s a bad sign for stocks if these indicators turn down while the overall stock market is going up.

Each of them individually don’t always give an early warning. But when most of them look bad, it’s a sign to prepare for bad times.

I’ve shared two of these indicators with you in the past here in DailyWealth. Let’s take a look at where they are today…

First up is the advance/decline line. This gave us an extreme early warning in the last great stock market “Melt Up” in 2000… While the Nasdaq Composite Index didn’t peak until March 2000, the advance/decline line peaked in 1998.

This is a simple indicator… You take the number of stocks that went up and in a day, and subtract the number that went down that day. That’s it. The running total of that is the advance/decline line. It shows when more stocks are rising than falling, or when the opposite is true.

In 1998 to 2000, it was going down. But today, it’s hitting new highs. No “early warning” sign here…

Next up, let’s look at small-cap stocks, as measured by the Russell 2000 Index…

Small-cap stocks can tell a similar story to the advance/decline line. If they are weakening while the major indexes are going up, it tells you that the overall stock market is not healthy… that the number of winners is narrowing.

That is not a problem today. Small-cap stocks just hit all-time record highs. Take a look:

These early warning indicators (and the others I track) will likely turn down ahead of a major market peak.

Right now, they’re doing the opposite. The message here is we still have plenty of upside ahead in stocks.

Good investing,

Steve

Source: Daily Wealth