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New market strength tool predicts bear market


Reality Shares CEO, Eric Ervin, believes that we are at the beginning of a long term bear market in US shares, a conclusion he has arrived at based on data from his firm’s new market tool, Guardian Indicator. 

The Indicator is a market strength tool which measures the strength of the key market sectors, and at the moment, he reports that Energy, Utilities and the Healthcare and Technology sectors are in negative territory, with Telecommunications right on the edge.
Ervin founded Reality Shares in 2012, having worked as a wealth adviser at Morgan Stanley. He launched his USD30 million DIVY ETF, based on isolating the dividends of companies from their stock prices, and now has more products coming on stream for the end of 2015.
“The Guardian Indicator is based on a significant amount of back tested results and history and a bit of intuition,” Ervin says. The system analyses price momentum of the S&P 500 and volatility, focusing on downside volatility.
“Over the past 50 years this model would have predicted about two thirds of the market corrections – it’s been pretty accurate” Ervin says. “Even in the past 15 years, it’s been 100 per cent accurate – it predicted the global financial crisis and before that, the tech crash.”
Ervin says that part of the firm’s overall philosophy is to protect people’s capital on the downside. “And if you can do that with a systematic rules based method, it takes a lot of human intuition out of the system. If you take volatility and momentum and price action and combine those things, you end up with a predictive system that can identify when risks are high.”
The firm continues to support ETFs as vehicles of choice for investors, and is in the process of launching DIVCON, which ranks companies on their likelihood of raising or cutting a dividend.
Within this, the firm is creating a Leader’s index of high quality businesses; Defender, long high quality and hedging by selling short the worst quality businesses and an index that uses the Guardian Indicator to indicate when to be neutral, long or short.

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