Nearly every investor can appreciate the recent growth in the stock market but also understand that stocks on all major indices stand near record high valuations by nearly every valuation metric. Pundits have been warning of a top to the current market rally for years only to see another year of growth.
However, these high valuations should at least give us reason to be cautious, if not outright worried about the stability and continued growth of stock prices. History has proven it very difficult to predict exact tops and bottom of markets; however, a few models have proven reliable over the long-term.
One such reliable indicator that has been reliable since 1895 as a sell indicator for stocks has appeared for only the sixth time since 1895. This indicator is derived by comparing the ratio of the S&P 500 to the median price of a new home in the United States.
The model was developed by Gray Cardiff, a renowned wealth advisor and analyst as well as the editor of the Sound Advice Newsletter. Cardiff is one of only a few wealth advisors whose portfolios have consistently outperformed the major stock indices for the past 20 years. Cardiff has made the indicator a centerpiece of his investment newsletter since 1990.
The rationale behind the indicator is that measures the struggle between capital between equities and real estate. When the indicatory rises above 2.0, it is an indicator that equities have absorbed an irrational portion of the available capital and are due for a correction.
Cardiff has made it a point to state that this indicator is not a short-term trading tool; in past instances where the indicator has risen above 2.0, equity prices have continued to rise in some cases for months and in a couple cases, over a year. However,
In all cases, as Cardiff has emphasized,
a major decline or crash followed, pulling down stock prices by 50% or more.
The last time this indicator rose above 2.0 was in 1998 during the dot-com bubble years. It is worth noting that the bubble finally burst in 2000. So this indicator, while not a short-term tool, is a good predictive indicator of the end of supercycles of equities growth. The indication is that now is a good time to take profits and remove risk from positions in stocks.
When preparing for a stock market correction, one of the safest, and most profitable asset classes has always been gold.
When you look at what asset class are cheap in comparison to the S&P 500, the commodity sector is historically cheap. By every historical indication, now is the time to add gold and silver to your portfolio for maximum value and profit.
When you further consider that the nearly decade old stock market rally has been driven by expansion of debt and monetary supply, a US stock market correction could have a devastating effect of the global stability of the US dollar.
At Midas Gold Group, we are always trading precious metals but now happy making a long-term buy & hold recommendation. Call our experts today to see how we can help you structure a purchase, privately or through your IRA, that can offer protection and profit potential over the coming years.