MAJOR TREND INDEX
By Doug Ramsey, CFA, CMT
REPORT DATE: January 27, 2016
DATA FOR WEEK ENDING: January 22, 2016
PO TENTIAL
WEIGHT
+
1200
1200
1100
1100
1200
1200
600
600
1800
1800
Intrinsic Value
Economic/Interest Rates/Inflation
Attitudinal
Supply/Demand
Momentum/Breadth/Divergence
Status: Negative
Ratio: 0.80...Up 0.07
S&P 500 P/E on Normalized EPS = 19.1x
(65th percentile, 1926 To Date)
Gain 36
Loss 4
Gain 115
Loss 8
Gain 2
LAT EST NET READING
+
78
288
467
129
400
148
116
156
204
868
1265
1589
Net
-210
338
252
-40
-664
-324
BALANCE : -324 (-465 Last Week)
*RAT IO: 0.80 (0.73 Last Week)
*T otal Positive Points : T otal Negative Points. (0.95 to 1.05 is a "Neutral" reading.)
Based on data through last Friday, the Major Trend Index rose 0.07 points to a ratio of 0.80. It benefited
from a huge jump (115-points) in the Attitudinal category and a solid gain in the Intrinsic Value work. Steady improvement in these countertrend categories, combined with deeply negative readings in the Momentum/Breadth/
Divergence work, is characteristic of an ongoing cyclical bear market; the body of evidence suggests it’s still too
early to hit a major low in equities.
Following last week’s equity hedge reduction of about 5%, both the Leuthold Core and Global Funds are
now positioned with net equity exposure of 37%.
While we expect considerably more downside before stocks find a bottom, we are encouraged by developments in the Intrinsic Value category during the bear’s most recent downleg. The current net reading of –210 compares with three peak readings of –415 in the weeks surrounding the June 23, 2015 all-time highs in the S&P
MidCap 400 and Russell 2000. Charts 1 & 2 show the sizable valuation adjustments for the Leuthold 3000 Universe and the Leuthold Small Cap Universe (1200 stocks) in particular; both measures now reside in their broad
“fair value” ranges, which we define as historical percentile readings between 30 and 70. If U.S. blue chips meet
even the minimum bear market decline threshold of 20%, look for readings on Charts 1 & 2 to move into the undervaluation zones.
The week’s improvement in the Attitudinal category was broad, though we’re still mystified as to why the
VIX has registered so little panic during the decline. Mutual fund timers, however, did panic last week, sending the
Rydex Ratio down to a level that coincides with the late September market lows. These developments are encouraging, but should be expected given the horrid price action YTD; however, they are certainly not enough on which
to build a longer term bullish case (yet).
Clients who have questions regarding any of the components or indicators should contact
Doug Ramsey 612-332-1567, dramsey@LWCM.com
Published By The Leuthold Group, LLC
The Leuthold Group, LLC, provides research to institutional investors. The material herein is based on data from sources we considered to be reliable, but it is not guaranteed as to accuracy and does not purport to be complete. Any opinions expressed are subject to change.
FURTHER DISTRIBUTION OF INFORMATION CONTAINED IN THIS REPORT IS PROHIBITED WITHOUT PRIOR PERMISSION.
MAJOR TREND INDEX (continued)
REPORT DATE: January 27, 2016
Unweighted (or median) stock valuations are no longer dangerously high. The odds are
good that the median stock in our Leuthold 3000 Universe will move into its undervaluation zone
(below the 30th percentile) during this decline.
Chart 1
33
32
31
Leuthold 3000 Median Normalized P/E
33
(Based on 5-Yr. Normalized EPS)
32
31
30
30
29
29
28
28
27
27
26
26
25
25
70th percentile = 24.0x
24
24
23
23
22
22
21
21
Jan 22
21.2x
20
30th percentile = 19.7x
19
20
19
18
18
17
17
16
16
15
15
14
14
13
13
12
12
11
11
10
10
© 2016 The Leuthold Group
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Chart 2
© 2016 The Leuthold Group
September 19, 1997
30.3x
December 27, 2013
29.8x
June 1, 2007
29.2x
January 22, 2016
21.8x
Leuthold Small Cap Universe
Median P/E on 5-Yr. Normalized EPS
(Leuthold Small Cap Universe =
Deciles 5-8 of Leuthold 3000)
1980
1990
2000
10.6x
March 6, 2009
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
9
2010
Published By The Leuthold Group, LLC
The Leuthold Group, LLC, provides research to institutional investors. The material herein is based on data from sources we considered to be reliable, but it is not guaranteed as to accuracy and does not purport to be complete. Any opinions expressed are subject to change.
FURTHER DISTRIBUTION OF INFORMATION CONTAINED IN THIS REPORT IS PROHIBITED WITHOUT PRIOR PERMISSION.