• Klaus Meitinger

Capital market seismograph warns of stock market storm.

Dear Readers,

"The pace at which the probability of a bear market increases is worrying," informs Oliver Schlick, who recalculates the capital market seismograph every four days.

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

Last week, the seismograph warned that massive thunderclouds would appear on the horizon. The probability of a calm, positive stock market ("green, buy or hold") had dropped significantly from over 90 to 71 percent. The probability of a turbulent, volatile market with a positive trend ("yellow") was 5 percent. And the probability of a bear market ("red") rose significantly to 24 percent.

"We responded by recommending a significant reduction in our equity exposure," recalls Schlick. Now the negative movement has continued. The probability of a calm, positive stock market is now only 69 percent. The probability for a bear market ("red") rose to 26 percent. The indication for a turbulent, volatile market with a positive trend ("yellow") remains at 5 percent;

"Although the sum of the probabilities is still at an advantageous level, the seismograph now advises: "Reduce the equity quota completely," Schlick informs. If the sky - in order to remain in the picture - darkens so fast and so strongly, the danger of a strong thunderstorm increases massively. "The further development", says Schlick, "we would rather observe at home in the warm living room - i.e. without stocks".


The private-wealth stock market indicator has been out of the stock market since the end of February 2018. This was triggered by the three-fold decline in ifo business expectations in the industry and the simultaneous very high valuation of the stock markets. Since then, the indicator has proposed a minimum weighting of equities of 0 - 30 percent of the individually planned equity component.

For the short-term positioning within this corridor we use the results of the capital market seismograph. Due to the positive indications, it seemed to have been appropriate for a long time to position itself closer to the 30 percent. Last week the seismograph then recommended a significant reduction and is now completely off the market. This puts the private-wealth stock market indicator at zero.

However, there remains a risk for investors. Should the situation in the trade conflict suddenly ease, the prospects for the stock markets would suddenly become much more optimistic.


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.