Reality Shares Guard Indicator Turns Bearish, Swings Back Into The Red

Reality Shares, an Exchange-Traded Fund (ETF) issuer and research firm, is anticipating that the second-longest bull market in history is likely over, and a significant selloff within the next three to six months is extremely likely based on its Guard Indicator turning negative on Nov. 9.

The Indicator looks at all sectors in the S&P 500, and if at least three show signs of breaching both the volatility and momentum trigger thresholds, it signals a potential bear market.

Not just three, but four market sectors have officially turned negative.

The Utilities sector turned negative on Nov. 2, down 13 percent from its peak, followed by the Consumer Staples sector on Nov. 8. After the market closed on Nov. 9, Real Estate became the third sector to turn negative, shortly followed by the Health Care sector on Nov. 18.

"Over the past 17 years, we've seen bearish markets during three separate periods: Sept. 1999 to May 2003, Jan. 2008 to July 2009 and Sept. 2015 to May 2016," said Eric Ervin, CEO of Reality Shares. "The average return of the S&P 500 during those three periods was negative 18.41 percent. These are the market scenarios the Guard Indicator with its rules-based methodology was created to detect, alerting investors to potential increases in market volatility and significant market downturns."

The Indicator is also signaling short-term weakness for the Telecommunications and Consumer Discretionary sectors.

"As a result of the current low interest environment, yield-thirsty investors piled cash into these sectors in the hopes of generating income - thus creating a dangerous bubble that is on the cusp of bursting," Ervin said. "The problem with owning these stocks strictly for higher yield is that prior sector outperformance was not supported by underlying corporate earnings. Should earnings decline, yield-chasing investors may be subject to dividend cuts as these sectors become more overvalued."

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