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The market is at a critical juncture with oil-related assets very oversold while equities are holding near all-time highs.

Homefurnishing Retail, Apparel Retail, Systems Software

Has the recent collapse in crude oil prices presented us with a good opportunity for an outright commodity investment? No. Energy stocks aren’t on our radar screen either.

In a cyclical bull market as long and strong as the current one, it’s certainly possible the topping process will be proportionally lengthy and deceptive.

Last year’s economically defensive winners held their grip on stock market leadership in January. This action is consistent with our view that the bull market is an aged, overvalued one that has begun a final “distribution” process that will eventually erupt into a cyclical bear.

We expect a “garden variety” cyclical bear market to break out this year or early next year and present a chart demonstrating the potential path of decline. In the context of the last two decades’ market action, a decline of this variety does not “look” all that significant.

While the collapse of Swiss government bond yields into negative territory was January’s bond market stunner, our “G7” composite 10-year government bond yield reached its own milestone when it closed the month below 1.0% for the first time in post-WWII history.

We’ve been highlighting the overinvestment (or malinvestment) risks in commodity-oriented equity sectors for the past three years, but we certainly did not foresee those risks exploding the way they have in the oil market over the last seven months.

A big question for investors is: have oil prices bottomed? For the past four days, WTI jumped 19% from its low reached on January 28th, giving some the conviction that prices are reverting back to prior high levels.

The market is at a critical juncture with oil-related assets very oversold while equities are holding near all-time highs. We continue to recommend taking a more defensive stance for now.

Up/Down Earnings: Solid Start With Q4 Reports

Small Cap Premium Sinks To 13%

The S&P 500 lost 3.1% (price only) in January. Based on the 1957-to-date valuation metrics presented below, downside to its historical average decreased by about 1% from last month’s reading of –15%.

Momentum Continues For Growth Stocks

S&P 500: Worst Month Since Last January

Most broad fund categories experienced positive net cash flows this week, with the exception of money market funds and domestic equity ETFs.

The Major Trend Index fell 0.01 to 1.00 in the latest week, with moderate swings in the Economic/Interest Rates/Inflation and Supply/Demand categories mostly offsetting one another. However, the bigger picture has changed little during the MTI’s 13-week stay in its neutral zone: Valuations and sentiment remain very inflated at a time when internal stock market action has become more disjointed. However, the technical work has not deteriorated enough to drag the MTI into bear territory, and the deflationary impact of the last six months’ commodity collapse has (so far) had a net positive impact on this work.

Domestic equity funds have seen net cash outflows so far in 2015, while bond funds have collected more net cash than any other category.

The Major Trend Index rose 0.04 to 1.01 in the latest week, the 12th consecutive neutral reading dating back to October 31, 2014. The MTI’s message remains that stock market risks are elevated, and we continue to target reduced net equity exposure of 50% in the Core and Global Funds.