Leuthold Group: Long-term stock indicator wildly bullish

Leuthold Group: Long-term stock indicator wildly bullish
Indicator last flashed a buy signal in May 2009.
JUN 15, 2016
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.

Latest News

Farther debuts AI investment proposal tool for advisors to win clients
Farther debuts AI investment proposal tool for advisors to win clients

"Im glad to see that from a regulatory perspective, we're going to get the ability to show we're responsible [...] we'll have a little bit more freedom to innovate," Farther co-founder Brad Genser told InvestmentNews.

Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler
Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler

Former advisor Isaiah Williams allegedly used the stolen funds from ex-Dolphins defensive safety Reshad Jones for numerous personal expenses, according to police and court records.

Are you optimally efficient?
Are you optimally efficient?

Taking a systematic approach to three key practice areas can help advisors gain confidence, get back time, and increase their opportunities.

Advisor moves: Father-son duo leaves Raymond James for LPL, RayJay adds Merrill Lynch alum in Florida
Advisor moves: Father-son duo leaves Raymond James for LPL, RayJay adds Merrill Lynch alum in Florida

Meanwhile, Osaic lures a high-net-worth advisor from Commonwealth in the Pacific Northwest.

Beacon Pointe adds six RIAs in two-month acquisition spree, boosting AUM by $2.7B
Beacon Pointe adds six RIAs in two-month acquisition spree, boosting AUM by $2.7B

The deals, which include its first stake in Ohio, push the national women-led firm up to $47 billion in assets.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.