The
March issue of Money magazine
featured an interesting article on technical indicators. It profiled three leading indicators, including
the price-to-sales (P/S) ratio for the S&P 500, the NYSE Advance-Decline
(A-D) line and the AAII investor sentiment survey. The P/S ratio is currently 1.6, which is 15%
above its historical average. This
reading often signals subpar returns for stocks ahead, according to the
article: “Since 1993, in the three years following a reading of 1.6, stocks
have eked out average annual gains of 1%...”
As
for the AAII sentiment poll, the Money
article noted that at the end of 2013, AAII “found that only 18.5% of investors
were bearish, vs. a long-term average of 30.5%.” This reading has typically “delivered
underwhelming returns the year after such a reading, but not losses.”
I
found the article interesting in light of my current take of the market’s
technical profile. While I see no
outright bearish signals in the immediate term, neither do I see an abundance
of “buy with both hands” signals out there.
In other words, we could be in for a very pedestrian market performance
for a while. Until the cycles and
indicators get back into alignment it will almost certainly continue to be a
stock-picker’s market where relative strength and momentum are a trader’s best
friend.
