Don't call me a bear

Most of the bears I know, with a few exceptions, have struggled since late 2022. What I usually do is raise or lower my cash allocation to fit the health of the market as measured by my collection of indicators. They haven't given a sell signal yet, but they are getting less bullish.

Moving average crossovers

One of my trusted indicators is the 1-month vs 6-month moving average crossover. This indicator just turned negative. I have 7 other indicators, which I will discuss in future posts. For now, suffice it to say that only 3 of my 8 indicators are positive as of today. No reason to rush into the open arms of the Treasury bond market, but letting your cash build up a little wouldn't be a bad idea. My cash is at about 10% right now.

The 10-yr Treasury Bond rate

This rate is on the rise, closing last Friday at 5.15%. I can see a rate of 5.5% if we don't get our fiscal house in order soon. These high rates are putting the squeeze on all borrowers, big and small. That works against the popular narrative of "affordability." The Fed is in a tough spot. I think they know the next move should probably be higher for Fed Funds, but nowadays we have to take politics into consideration as well. So, who knows how it will all shake out?

Where the damage is concentrated

The worst slice of the global market year-to-date is Uranium Miners - down 34.4%. Almost as bad is Rare Earth Metals - down 32.3%. I thought they were difficult to find, difficult to extract, and China had a near-monopoly on these metals. That hasn't stopped the big money pools from selling.

Mean Reversion

If you want to see what mean reversion looks like in practice, take a look at this chart of Silver - once as hot as could be, and now coming back down to reality. After a blowoff top in late January, it's been all downhill since.

Bitcoin and other cryptos

Bitcoin followed Silver by peaking in January and sinking after that. At least the bitcoin crowd made a couple of brave attempts to reverse the downtrend. But in the end, these proved to be just counter-trend rallies. Bitcoin trades at a 26.6% discount from its highest price in 2026.

Self-driving Electric Vehicles

You would think that this would be one of the fastest growing areas of the market, but no. Perhaps the market is getting saturated, or prices got way ahead of themselves. Whatever the reason, this cohort is down 22.5% YTD.

Drones

I'll leave you with this master class in mean reversion. When the Iran war broke out, the big money scooped up as much as they could of the companies that make drones. We already had a steady demand from the Ukraine-Russia conflict, so Iran should have sent this group of companies soaring. But it didn't. 

The culprit, once again, was an overvalued asset reverting to the mean. 

The takeaways

The combination of technical indicators flashing caution, and assets that should be climbing ever higher but are doing the opposite has made me a little more cautious too. As I said earlier, I have about 10% cash, which I think is about right for our present circumstances. After all, we are only 3.3% away from our last all-time-high. History has shown, again and again, that the market can rise by that amount in as little as a single day. I think it will take a few weeks, but I'm still confidend that we'll get another high before year end.