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The Major Trend Index rose 0.04 to 0.93 in the week ended October 24th, just two ticks below its neutral band. The technical category scored a significant gain after last week’s market surge, while Supply/Demand dynamics became somewhat less negative. Nonetheless, the work taken as a whole continues to support a defensive stance towards equities in the immediate term, and net equity exposure in both the Leuthold Core Fund (38%) and Leuthold Global Fund (40%) remains on the low end of its normal range.

The Major Trend Index rose 0.06 to 0.89 in the week ended October 17th, remaining within its negative zone for a third consecutive week. This work remains consistent with further corrective action in the stock market, and our tactical funds remain positioned with below-average net equity exposure of 40%.

Bond mutual funds have seen persistent negative net cash flows, and YTD flows are now about $40 billion lighter versus tallies recorded just one month ago.

Despite dismal equity market performance, domestic equity ETFs saw positive cash flows for the week ended 10/15. Alternatively, domestic equity mutual funds and foreign-focused equity ETFs experienced net cash outflows.

Major Trend Bearish at 0.83

Net cash outflows continued this week for domestic equity funds, while bond and money market funds captured net inflows.

As we progress through 2014, a shift in fund flow trends established midway through 2013 is still intact—just more subtly so.

In Q3 the High P/E Tier was the best performing subset, up 2.1%. However, the High P/E Tier has lagged the other two segments significantly YTD—up only 3.1% compared to +10.1% and +11.8% for the Mid and Low Tiers, respectively.

The S&P 500 lost 1.6% (price only) in September. Based on the 1957-to-date valuation metrics presented below, downside to its historical average narrowed to 14%, about 2% less than last month’s reading.

Consumer Discretionary is heaviest weight in domestic and Global AdvantHedge.

Select Industries slightly increased Department Stores & Health Care Facilities; Global Industries purchased Real Estate Management & Development and Road & Rail.

Major Trend Index turned negative and as of early October, we are now targeting 40% net equity exposure.

After two months in neutral territory, the Major Trend Index finally broke to negative for the week ended October 3rd, with a decline to the 0.90 level.

While the Major Trend Index, at 0.90, is now in its negative zone, it’s not as if all the traditional bearish bellwethers have lined up in a row (… then again, they never do).

September’s small S&P 500 loss of less than 2% disguised a significant breakdown in the “average stock.” In fact, the S&P 500 has been tougher to beat than at any time since the Tech Bubble.

While we’ve noted that damage to any capitalization-weighted stock market measure has so far been limited, three of the five major indexes shown in this chart have nonetheless broken below the major trendlines drawn off their 2009 bear market lows.

Much like the blue-chip indexes themselves, the cap-weighted S&P 500 sector indexes generally resisted the market mayhem erupting beneath the surface in September.

We wrote in May the mid-year months of a mid-term election year are historically the weakest for the stock market from a calendar perspective. Large Caps, however, have mostly bucked that pattern.

With the Fed mulling over a rate increase, investors may have already started to avoid companies with excess leverage. Unfortunately, Small Caps, on average, are in this camp.