What the Early Warning Indicators Say Now

I could tell the crowd was already hostile toward my ideas...

I gave a speech last week, and I told the crowd what my "early warning" indicators are showing me about the markets right now.

Let me be clear...

These early warning indicators are not "sell now!" indicators. They simply tell us to start being cautious – that the stock market may peak in the coming months.

So what are they saying today?

The answer is simple. But first, let's talk more about how I use them...

I laid out five objective, early warning indicators for my subscribers in late 2017. Putting them out there was a bit of a risk... You know I've been bullish for years on the stock market. What if my objective indicators said it was time to be cautious – and I disagreed?

Still, I knew it was important... because these signals are so powerful.

The basic idea is this: It's a bad sign for stocks if these indicators turn down while the overall stock market is going up.

Each of them individually don't always give an early warning. But when most of them look bad, it's a sign to prepare for bad times.

I've shared two of these indicators with you in the past here in DailyWealth. Let's take a look at where they are today...

First up is the advance/decline line. This gave us an extreme early warning in the last great stock market "Melt Up" in 2000... While the Nasdaq Composite Index didn't peak until March 2000, the advance/decline line peaked in 1998.

This is a simple indicator... You take the number of stocks that went up and in a day, and subtract the number that went down that day. That's it. The running total of that is the advance/decline line. It shows when more stocks are rising than falling, or when the opposite is true.

In 1998 to 2000, it was going down. But today, it's hitting new highs. No "early warning" sign here...

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Next up, let's look at small-cap stocks, as measured by the Russell 2000 Index...

Small-cap stocks can tell a similar story to the advance/decline line. If they are weakening while the major indexes are going up, it tells you that the overall stock market is not healthy... that the number of winners is narrowing.

That is not a problem today. Small-cap stocks just hit all-time record highs. Take a look:

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These early warning indicators (and the others I track) will likely turn down ahead of a major market peak.

Right now, they're doing the opposite. The message here is we still have plenty of upside ahead in stocks.

Good investing,

Steve

Further Reading:

"The small-cap Russell 2000 Index just made a new all-time high," Justin Brill writes. Learn one way to profit from the tailwind in small companies – plus which of Steve's top ideas is dazzling the markets – right here: One of Steve's Favorite Companies Continues to Shatter Expectations.

"It's the last, best way to outperform the markets," Steve says. One simple principle can give your investing decisions a major edge. And right now, it's saying you want to be in stocks... Read more here: The Last Great Buying Opportunity of the 'Melt Up.'

Market Notes
HIGHS AND LOWS

NEW HIGHS OF NOTE LAST WEEK

Visa (V)… credit cards
Boston Beer (SAM)… Samuel Adams, Angry Orchard, Twisted Tea
Brown-Forman (BF-B)… Jack Daniel’s, Woodford Reserve, Finlandia
Churchill Downs (CHDN)… gambling
Eldorado Resorts (ERI)… gambling
Penn National Gaming (PENN)… gambling
Madison Square Garden (MSG)… concerts and sports
Weight Watchers (WTW)… weight-loss help
Nike (NKE)… athletic clothes and shoes
Lululemon Athletica (LULU)… yoga inspired” apparel
American Eagle Outfitters (AEO)… “bad to less bad” in retail
Urban Outfitters (URBN)… “bad to less bad” in retail
Macy’s (M)… “bad to less bad” in retail
Burlington Stores (BURL)… discount “one-stop shop”
Ollie’s Bargain Outlet (OLLI)… discount retailer
Costco Wholesale (COST)… membership-only bulk retailer
Best Buy (BBY)… big-screen TVs, laptops, tablets
GoDaddy (GDDY)… world’s largest domain-name provider
Booz Allen Hamilton (BAH)… “offense” contractor
Steel Dynamics (STLD)… steel
Vale (VALE)… iron ore
Royal Dutch Shell (RDS-A)… oil and gas
Total (TOT)… oil and gas
Hess (HES)… oil and gas
CSX (CSX)… railroads
Union Pacific (UNP)… railroads
J.B. Hunt Transport Services (JBHT)… trucking

NEW LOWS OF NOTE LAST WEEK

Altria (MO)… cigarettes
Philip Morris (PM)… cigarettes
Campbell Soup (CPB)… soups, sauces, and more
Colgate-Palmolive (CL)… toothpaste, liquid soap, and more