Bear markets are typically characterized by a deteriorating market. Also, a number of indicators signal a transition from bull market to bear market.
We're not there yet, Dumont said. "The good news is that the usual suspects of a bear market are not present," he added.
The bad news is that GaveKal's technical indicators point to a medium-term correction of 5 percent to 10 percent in stocks. Technical indicators are a lot like baseball statistics: Investors use them to measure the health and performance of different markets or stocks, to see which have done well, which are tired, and which might be entering a slump.
Currently, Dumont says, the stocks in the S&P 500 Index, which he watches closely, are exhibiting signals warranting a correction:
"The market is showing signs of exhaustion of the upward trend," Dumont said. "Upside is limited on a short- to medium-term basis, and a correction is likely."
When it comes to sentiment, investors are "overconfident," a sign of market euphoria, Dumont explained.
There is no one formula to predict the top of a market. But in Dumont's view, "the probability of a medium correction has significantly increased. Stocks could tumble 5 percent to 10 percent in the immediate future. My finger is on the sell button."
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