Published September 20th 2022

Daily Brief - The bear market checklist

TL;DR

A recent Barron’s article quoted a fascinating statistic for numbers nerds like ourselves. Tuesday’s stock bloodbath in the aftermath of the CPI report showed a record number of selling flows. In fact, fewer than 1% of the stocks in the S&P 500 finished higher. According to the article, this has happened only 28 other times since 1940. The index gained an average of 15.6% over the following 12 months, and was higher 79% of the time.

So, what’s next?

This might be a good moment to review our bear market checklist again for a sanity check on how close we might be to the major bottom in stocks.

The bear market checklist To be clear, the aim of the checklist is primarily to instill the discipline and patience for that perfect pitch. It’s by no means an exhaustive list of helpful indicators in determining a market low. A bear market could easily bottom with only 3-4 “checks'' on this list.

  1. Duration: No check. When we last checked this list a couple of months ago, we were only about two thirds through the historically typical 10-12 month duration. While still no check, at just over 9 months the bear market is now very close to its historical duration.
  2. Peak to trough correction: No check. We are very close but not quite at the 36% drop often seen during bear markets - S&P 500 clocked in at around 23% at the very low, short of the mark at the lows. A retest and a possible extension of the drop thus remains quite likely.
  3. Retest: No check. The bounce started from a new low and hasn’t retested it yet. However, we are getting tantalizingly close to the lows of June.
    spy
  4. Divergence with new stock lows: No check This indicator was improving but suffered substantial setbacks in recent weeks.
    barchart
    Source: BarChart
  5. 90% upside day: No check. Market is currently in a downturn so this can only be checked once we turn up again.
  6. TLI turning positive: No check. The aggregation across all TOGGLE insights has been remarkably spot on during the bear market and - even correctly highlighting the relatively short lived rally - currently remains in the neutral territory.

On balance, the evidence suggests we have not yet bottomed. At the very least, a re-test of June lows may be in the cards and potentially extending the drop beyond.

Idea Spotlight: Disney

Valuations indicators for DIS:NYSE reached a recent low and historically, this led to a median increase in price of 16.11% over the following 6M. TOGGLE analyzed 4 similar occasions in the past to produce the median projection and this insight received 5 out of 8 stars in our quality assessment.

CEO Bob Chapek's Disney: Streaming exclusives, no politics, sitting tight on ESPN...

disney price history

Daily Brief - The bear market checklist

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