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The Major Trend Index rose 0.03 to a ratio of 0.83 using data for the week ended February 5th. The ratio was lifted by moderate gains in both the Attitudinal and Momentum/Breadth/Divergence categories. The work suggests a cyclical bear market remains in force—and it’s worth noting that virtually every global stock market measure other than the DJIA and S&P 500 tends to confirm that view. Broad market damage, in fact, has been severe enough that we’ve covered another portion of our equity hedge, lifting net equity exposure in the Leuthold Core and Global Funds to 40% from 36-37%.

The Attractive quintile of the GS Scores became more defensive in nature; the six groups that were downgraded all sported a cyclical business model. The SI portfolio’s Homebuilding group was deactivated after its GS Score strength deteriorated fairly quickly during its disappointingly short tenure.

We think the Fed’s projection of four more hikes this year is absolutely unachievable, and we are no doubt siding with the market’s current projection of one hike, at most (if any), this year.

Bear markets need a “hook”—some sort of misdirection that keeps the majority hoping. Our work suggests a primary bear market is underway, and we fear oil is this bear’s hook…but the problems run deeper than oil.

As quantitative investors, the disciplines of the numbers trump stories—even our own. But we’re struck that the stories depicted by our Major Trend Index and other market tools over the past two years are entirely logical and sequential. Unfortunately these stories rhyme with those of past market cycles.

What initially looked promising fell apart fairly quickly

At its January 20th closing low, the S&P 500’s peak-to-trough decline of –12.7% barely met our definition of a severe market correction (an S&P 500 loss of 12% to 18%). But the behavior of this particular index can be quite sinister during the final phase of a bull market—and during much of the ensuing bear.

At the August and late January S&P 500 lows, both the Daily and Weekly NYSE New Lows figures exceeded 40% of Issues Traded —a degree of downside thrust rarely seen outside of bear markets.

There’s an old trader’s adage which holds that “the most powerful sell signal is a failed buy signal.” Last fall we noted that European equities and Small Cap Value had triggered BUY signals on our Very Long Term (VLT) Momentum algorithm.

If the current global bear market manages to shake investors’ blind faith in central bankers, this decline might actually accomplish something in the long term. But breaking that faith will take awhile.

This month’s “Of Special Interest” allots eight pages to the (opposition) view that the correction is over, featuring charts we find the most threatening to our bearish stance. Based on its sudden popularity among the press and punditry, the indicator in this chart—highlighting the air-pocket in investor confidence—perhaps should have been part of that feature. Here’s why it wasn’t.

By now it’s consensus that the Fed missed the ideal window for the first rate hike (if one ever existed) by at least a year and a half. We don’t disagree…

In the context of a low growth/low inflation environment, with the Fed taking its time to guide rates upward, fixed income type of investments may pale by comparison to dividend paying stocks.

The MTI fell deeper into bear territory during a horrendous market month. The 0.80 ratio is consistent with an ongoing primary bear market—and so are many of the moves by various MTI categories.

The transition we saw last year from a mostly Risk-On (or Easing) environment to a more challenging Tightening (or Risk-Off) environment has made the relationship especially volatile.

Despite the already strong performance over the last three years, this group has recession proof attributes, positive industry trends, and widespread areas of potential growth.

We are aware of the oversold condition in oil but we expect volatility to remain high in the near term. We maintain a defensive stance towards credits at this point.

We’ve been correctly positioned near our tactical portfolios’ equity minimums, yet we’re oddly compelled to use this month’s “Of Special Interest” section as a very public second-guessing of that move.

Among the bottom ranked sectors are Utilities, Materials, Energy, and Telecom Services. These four sectors have been the bottom four rated sectors for a minimum of eight months.

We maintain Neutral in light of persistent high volatility.