STREET DOGS

From Jim Slater, signs of an upcoming bear market:

Cash is usually regarded as a very undesirable asset. As a result, the cash balances of institutional and private investors will usually be at very low levels. US fund managers describe the mood well: “cash is trash”.

Value will be hard to find. The average price:earnings to growth ratio will be 1.5 or more and there will be few, if any, stocks at a substantial discount to asset values. The average dividend yield will be at historically low levels.

Interest rates will usually be about to rise. Certainly, the chances of them falling further will be minimal. Broad money supply will usually be contracting.

New issues will be rampant and of increasingly low quality. The fundamentals of each issue will be less relevant to investors than how many shares they can get hold of to make a quick turn and be ready to subscribe for the next one.

The ratio of directors buying to directors selling will have fallen to historically low levels.

Shares will fail to respond to good results, even those of companies that beat their forecasts. This is a sign of the market’s exhaustion and that very little buying power remains.

The consensus of investment advisers will be bullish and the general mood of investors will be upbeat. The market will be the subject on everyone’s lips at cocktail and dinner parties. Enthusiasm for shares and unit trusts will be evidenced by the increased space given to investment by newspapers and magazines.

When more than 75% of all the stocks in the market have been standing above their longterm averages and if the number then falls below 75%, that is usually a bearish technical signal.

A major change in market leadership will take place. Cyclicals usually do well near the top of bull markets.