"Wall Street storm front beginning to dissipate."

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Dear Readers,

on February 13th - about three weeks ago - the team around Professor Dr. Rudi Zagst and Oliver Schlick wrote to us: "The likelihood of a bear market has increased significantly." Therefore, the capital market seismograph triggered a sell signal. The model recommended significantly reducing the current equity exposure.

Seismograph Feb2018

As you know, the seismograph distinguishes between three phases in the US equity market: "green" (quiet market = buy), "yellow" (turbulent market with positive expectation = invest, but with hedge) and "red" (turbulent market with negative expectation = do not invest).

"The rapid change of the red probability for a bear market from one to 21 percent in a few days had signaled at that time: There's something in the bush," explains Schlick: "That's why the model played it safe and recommended lowering the stock quota.

If the black clouds dissipated, the expert had explained further at the time, the equity quota would quickly rise again: "Then we might have to buy back the shares at a slightly higher price. But I like to pay this price for the certainty that I will no longer be affected if there is lightning and thunder within the next days, weeks or months.

At that time, the S&P 500 was trading at 2650 points. Today, only 70 points higher, the storm front is apparently beginning to dissipate again.

In recent weeks, the likelihood of a calm, positive US equity market ("green") has fallen only slightly from 70 percent to 68 percent, and the likelihood of a turbulent, volatile market with a positive trend ("yellow") has dropped minimally from nine percent to 8 percent. This was accompanied by a slowdown in the increase in the probability of a bear market ("red"). It increased only slightly from 21 to 24 per cent.

"For us, two factors are important - the dynamics of change and the absolute magnitude of the respective probabilities. And the dynamism of a critical development has weakened in recent weeks," explains Schlick. "Lightning and thunder have failed to appear at first. The situation is now stabilizing. That's positive. And since the green and yellow parameters still have a total probability of 76 percent, we are now increasing the equity quota again. We'll be very careful, though. The convenient times with chances for a bull market of well over 90 percent are definitely over. As a result, the model would now recommend reducing the equity exposure again as soon as the first signs of renewed turbulence appear," explains Schlick.


The seismograph signals a slight relaxation on Wall Street. As you know, at the end of February the private-wealth stock market indicator had delivered 12500 DAX points to ein Verkaufssignal for the German stock market. He now only proposes an equity quota of between zero and 30 percent. In view of the somewhat more positive development of the seismograph, it may not be a bad idea to position oneself closer to the 30 percent than to the zero percent.



Klaus Meitinger

Note: Despite careful selection of sources, no liability can be accepted for the accuracy of the content. The information provided in private wealth is for information purposes only and does not constitute an invitation to buy or sell securities.

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