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The most common 2018 time-cycle pattern among major markets is a fall correction, with the U.S. and Japan faring better than their European counterparts.

While we still believe flattening is the more likely scenario over the medium term, we do feel the recent flattening move is a bit overdone and there are several divergences that suggest a short-term steepening correction is in store.

This multi-factor estimate of stock market risk is based on a regression to median stock market levels.

Tax cuts, a strong economy, and daily stock market records have lifted measures of investor sentiment to levels not seen in two decades. But sentiment is only a slightly better timing tool than valuations (which is not saying much), and there’s plenty of room for excitement to build before a final top is at hand.

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With the northern U.S. stuck in a deep-freeze, there could hardly be a worse time for the nation’s utilities to fail. But conventional chart work suggests that is exactly what’s happened. The Dow Jones Utility Average fell below its 40-week moving average last Friday, dropping the simple four-indicator model, shown in the chart, into third gear after it had spent most of the year with “four on the floor.”

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While investors look high and low for signs of excess that might portend the next bear market, they should pause and consider the excesses that have recently gone away.

Read this week's Major Trend Index.

We observed in July that at an age when most bull markets are prepared to see the mortician, this one still seems to need a pediatrician. And five months later, the bull is acting as immature as ever!

See this week's Major Trend Index.

The stock market has disregarded any and all caution flags throughout 2017, and the consensus is that it will continue do so through year-end.

We reconstituted the November and October “Bounce” screens back to 1986 and compared their average performance versus the “non-bounce” companies. Compared with the October list, the November list shows a much weaker bounce effect.

For sector overweight/underweight decisions, applying a Momentum overweight with both EM and DM countries has been most successful.

While the FANGs—and, lately, the Dow stocks—are the market’s undisputed leaders, it’s difficult to argue the market has narrowed in a fashion that’s indicative of a “distribution” phase.

The Fed has long claimed itself to be “data dependent” while providing less and less information on those data points it considers most relevant. We can’t know what’s on that list, but we certainly know what isn’t: the ISM Manufacturing Composite, which (prior to the current cycle) provided an excellent gauge of the Fed’s policy bias.

November’s report might have been lifted verbatim from the Goldilocks playbook, with the reading very strong but below the 60 level that we’ve statistically shown to be a threshold where “good news becomes bad news” for the stock market.

In Q3, the CBO’s Nominal Output Gap swung to positive for the first time since the last business cycle peak. This type of move has historically meant the cyclical peak in profit margins is close at hand.

Comparing current valuations to March 2000 is unfair to March 2000. Any Value or Small Cap manager from that era can attest that values became more plentiful as the S&P ascended into its narrow peak.

Economic and momentum considerations have kept us mostly aboard this bull for much longer than our value-seeking inner selves would have otherwise allowed.