Leuthold Group: Long-term stock indicator wildly bullish

Indicator last flashed a buy signal in May 2009

Jun 14, 2016 @ 7:54 am

By John Waggoner

Wall Street has become the new Yellowstone: You can't turn a corner without running into a bear. But here at the 28th annual Morningstar Investment Conference, the Leuthold Group said one reliable long-term indicator has turned “wildly bullish.”

Some big names have been making gloomy moves recently. Legendary hedge-fund manager George Soros has been buying gold on worries about the United Kingdom's possible exit from the European Union. According to the perpetually gloomy Zero Hedge, hedge-fund managers Carl Icahn and Paul Singer have also voiced concerns about the stock market. The so-called "fear index" is also rising.

But Doug Ramsey, editor of the Leuthold Group's highly respected Green Book, says the Very Long Term Momentum Indicator — also known as the Coppock Curve — is flashing a buy signal. The VLT is designed to show what the stock market looks like in people's minds, and was developed by Edwin “Sedge” Coppock, a quantitative technician with an unusual approach.

“He went to members of the clergy and asked about the nature of the human grieving cycle,” said Mr. Ramsey. “They said the worst was over by 11 to 14 months.” His Coppock Curve was designed to reflect a weighted rate of change over roughly that period. A buy signal means that the market is oversold over the long term, and that investors are more interested in future moves than grieving over past losses.

The VLT signal is interesting for two reasons: It doesn't flash often, and when it does, it tends to be a powerful one. “We've had 26 signals in 90 years, and the last one was in May 2009,” Mr. Ramsey said. “That worked out well, even though the market was up considerably by then.”

All other things being equal, the Coppock Curve signal should be wildly bullish. “Of course, all things are not equal,” Mr. Ramsey said. Stock valuations are much higher than they were in 2009 — and, in fact, one of the few times the signal failed was in December 2001, when valuations were even higher. The trailing 12-month price-to-earnings ratio of the Standard and Poor's 500 stock index is 24.3 times earnings, vs. a median of 16.4 since 1936.

Ramsey ran the VLT calculations on 115 industry sectors, and the 11 materials sectors were the most strongly oversold, he said. One reason for that has been the restraint in capital expenditures during this year: Companies have been reluctant to buy new machinery and equipment, or to build new factories. The most recent rise in materials prices signals that traditional late-cycle sectors — such as metals and mining — could have a ways to run.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

When can advisers expect an SEC fiduciary rule proposal and other regs this year?

Managing editor Christina Nelson and senior reporter Mark Schoeff Jr. discuss regulations of consequence to financial advisers in 2018, and their likely timing.

Recommended Video

Path to growth

Latest news & opinion

Cutting through the red tape of adviser regulation is tricky

Don't expect a simple rollback of rules under the Trump administration in 2018 — instead, regulators are on pace to bolster financial adviser oversight.

Bond investors have more to worry about than a government shutdown

Inflation worries, international rates pushing Treasuries yields higher.

State measures to prevent elder financial abuse gaining steam

A growing number of states are looking to pass rules preventing exploitation of seniors.

Morgan Stanley reports a loss of advisers after exiting the protocol for broker recruiting

The firm said it lost 47 brokers in the fourth quarter, the most in any quarter of 2017.

Legislation would make it harder for investors to sue mutual funds over high fees

A plaintiff would have to state in their initial complaint why fiduciary duty was breached, and then prove the violation with 'clear and convincing evidence.'

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print