Storm clouds gathering over stocks

At the close of 2015, we got several bearish signals and positioned our portfolios to be almost neutral to the stock market by buying ETFs with inverse stock market exposure.  

In other words, our net exposure to the stock market is now very near zero.

If the market weakness continues through the first week of January, we expect to get additional sell signals.




Sell Signals

These are the most bearish signals we’ve seen since April/May 2008.  

Here’s one chart that may help visualize what we are seeing.  


Source: Auxan Capital, All World Index

Source: Auxan Capital, All World Index


Warning Signals

This is a chart (above) of the All World Index, which reflects global economic conditions.  

There’s rarely a perfect parallel in the stock market, but general patterns do tend to repeat themselves and the current conditions are shaping up to look a whole lot like the market top in 2007-2008.  

That doesn’t mean the decline will turn out the same, but it does warrant caution.


Data Points

Many other signals and data points that tend to accompany market tops have occurred in the past year.  

Here are 14 of them:

  1. Declining earnings for several quarters
  2. Peak margin debt
  3. Declining transportation index
  4. Flattening yield curve
  5. Deteriorating market breadth
  6. High-priced IPOs
  7. Elevated M&A activity
  8. Falling commodity prices
  9. Trendlines breaking down
  10. Aging bull market
  11. High-yield debt dropping
  12. Stretched PE valuations
  13. Manufacturing index below 50
  14. Monetary tightening

Takeaway? In my opinion, there are a lot of reasons to be defensive right now

Certain of the information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Covestor believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.


Photo Credit: Zooey via Flickr Creative Commons


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Auxan Capital Advisors LLC
Auxan Capital Advisors LLC
Auxan Capital Advisors, LLC is a growing RIA based in Springfield, MO. They work with individuals and institutions to actively manage their portfolios, give investment advice, and provide consulting services. Chief Investment Strategist, Derek Schmidly, has 12 years of experience managing portfolios actively and developing quantitative systems for trading. He has an MBA from the University of Missouri and is an Adjunct Professor of Finance at Evangel University. President, Paul Ebisch, is also an experienced asset manager. Under his management, client portfolios performed exceptionally well through the last two major recessions. He has also managed large bond portfolios for banking institutions. Paul and Derek have been managing portfolios together since 2004.