Bank of America Corporation gives a list of 19 "bear market signals" indicators to help you judge bulls and bears.

Trying to timing the market can be dangerous, but when professionals try to judge the future risks of stocks, they look for indicators that may help ordinary investors predict the market. Bank of America Corporation Securities (Bank of America Securities) has compiled a list of "bear market signal" indicators for clients to help them predict when the stock market may be close to a bear market. These 19 signals range from basic to emotional indicators and have been passed on for more than 50 years.

So far, 63% of bear market signals have been triggered, up from 47% in January. Since 1968, bear markets have occurred when 80 per cent of indicators have been triggered, which often means stocks are down 20 per cent from their recent highs.

Savita Savita Subramanian, equity and quantitative strategist at Bank of America Corporation, said in a recent client report: "judging from the stock price trend, there seems to be more good news than bad news. "

In October 2018, almost 79% of the "road sign" list was triggered. As a result, the S & P 500 fell to a bear market and suffered its worst December since the Great Depression. The pace of the Fed's 2018 rate hike is a trigger on the bear market signal list because before a bear market, the Fed always raises interest rates by at least 75 basis points from cyclical lows.

The following is a list of 19 "bear market signals" indicators released by Bank of America Corporation:

1. The Federal Reserve raises interest rates

2. Tighten credit conditions

3. The minimum rate of return of the bull market in the past 12 months is 11%.

4. The minimum rate of return of the bull market in the past 24 months is 30%.

5. Low-quality stocks outperform high-quality stocks (more than six months)

6. Momentum stocks performed well (more than 6 to 12 months)

7. Growth stocks perform well (more than 6 to 12 months)

8. The stock market fell 5% last year

9. Stocks with low price-to-earnings ratios underperform

10. The World Federation of large Enterprises' consumer confidence index has not reached 100 in 24 months.

11. The World Federation of large Enterprises expects the share ratio to rise.

12. There is no return on the income difference.

13. Seller's indicator, a reverse indicator of the optimism of the seller's stock.

14. A survey of Bank of America Corporation fund managers shows that the cash level is relatively high.

15. The yield curve of treasury bonds is "upside down"

16. Changes in long-term growth expectations

17. According to the 20 rule, the sum of previous stock market price-to-earnings ratios and CPI inflation is greater than 20.

18. The volatility index has broken through 20 at some point in the past 3 months.

19. Amendment rules for income estimates.

The current bearish signs

At present, if investors buy three-month bonds, they will get higher yields than 10-year bonds, which is not normal. In general, the longer the holding period of government securities, the higher the yield. This is a government bond market phenomenon known as the "upside down" of the yield curve. As we all know, the reverse yield curve appeared before the recession and was one of the hallmarks of Bank of America Corporation's judgment of a bear market.

Another indicator that has been triggered is a weak reaction from share prices of companies with better-than-expected earnings this quarter.

Since the first quarter of 2018, US stock market returns have beaten Wall Street expectations the lowest, the third lowest since 2000, according to Bank of America Corporation. Subramanian added: "historically, in the quarters after the S & P 500, 60% of the time, returns were before low returns." "

Stocks with low price-to-earnings ratios are also underperforming, signaling a bear market warning. Stocks with low price-to-earnings ratios are generally considered undervalued and may be a good buying opportunity. When investors do not buy these cheap stocks, it usually means they are flocking to buy high-growth stocks; this means that the most expensive stocks are barely driving market returns.

Another flashing sign is tightening credit conditions, which will tighten when it becomes more difficult to borrow from banks. In times of uncertainty or economic slowdown, banks will tighten lending to hedge risk. The past three bear markets began after a certain percentage of banks tightened lending standards. Banks expect credit standards to tighten this year, according to a recent Fed survey.

There are many signs at the moment.

Bank of America Corporation's survey of fund managers recommends that the cash level be kept above 3.5 per cent, which means it is not a bear market. Generally speaking, fund managers are bullish when they do not recommend cash positions to clients, but Bank of America Corporation says this may be a reverse indicator of buyer optimism. Therefore, since the current recommended cash position is higher than 4%, the road sign will not be triggered.

The change in long-term growth expectations is another indicator that has not yet been triggered. Short-term pain is recognized by market instability; however, Wall Street firms are optimistic about economic growth in the second half of 2020.

Another recent sign of optimism is that US consumer confidence grew faster than expected in January as the outlook for the labour market improved. The World Federation of large Enterprises (Conference Board) consumer confidence index rose to 131.6 this month, up from 126.5 in December. Economists surveyed by Dow Jones expect consumer confidence to rise to 128. Any reading below 100 heralds a bear market.

When the Cboe volatility index (Volatility Index) rises above 20, it triggers another bear market warning signal. Despite the epidemic and the uncertainty of the US presidential election, the volatility index VIX is still below 17, which is still good news for the stock market.

To be sure, although this method developed by Bank of America Corporation has a good forecasting record, the next bear market may always be accompanied by different factors.

Most professionals advise against judging the timing of bull and bear markets on the basis of these technical factors. Nonetheless, it may be a useful practice for ordinary investors to take a look at this list to determine how risky their investments should be.