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Michael Le
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I am a Economics Student at Portland State University. I am also the President and Market Research Analyst of the PDX Investment Club which has changed to the PDX Financial Literacy Group as of 7/2014. I am interested in Heterodox based crisis theory, and market/economic cycles. I hope to... More
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Portland State Financial Literacy Group
  • Bear Market Check-List  0 comments
    Aug 15, 2014 11:43 AM | about stocks: SPY

    There are personally 4 signals that I look for when determining if the market is leaning towards the bears vs the bulls.

    1. A tightening Fed (Soon the be, so a half check)

    Whoever says that the Federal Reserve places no impact on the financial markets is out of his mind. The run-up by equities in the last 5-6 years can be seen as influenced by ZIRP and an accommodating federal reserve. This euphoria regarding ZIRP and low interest rates will come to a dead halt if the Federal reserve decides to tighten more than expected, earlier than expected. This in turn causes a more challenging environment for business and could hurt their top and bottom line. If the fed decides to raise rates while the 10-year continues to fall like it has for this year, it could be an ominous sign that the markets may be in trouble given a flatter yield curve.

    The long end of the curve is flattening as show above.

    2. Problems in the credit market (CHECK)

    The credit market does a wonderful job as a leading indicator of market movement.

    (click to enlarge)

    3. Market Momentum (NO CHECK)

    MACD shows a bullish cross over while RSI is positioned at around 50 which is not oversold or overbought. When the market makes a new high, but momentum is getting squeezed, that may be a good time to prepare for a forthcoming bear market given other signs confirm as well.

    (click to enlarge)

    4. High SPY/ISDA 150 U.S. 150 Credit Spread (NO CHECK)

    Although there has been an increase in the past 3 months, it hasn't been large enough to suggest a looming bear market. We may simply be expecting a small correction which might have already happened in the first weeks of August.

    source (spindices)

    (click to enlarge)

    Themes: Marco-economics, Bear-market Stocks: SPY
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