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Figure 1 illustrates the performance of the model in predicting the shifts to bull and bear markets over
the past fifty years. The model does very well in predicting all the reversals from a bull (bear) to a bear
(bull) markets during that period. On average, the model signals the start of a bear market with a lead
of less than a month before its actual start and the start of a bull market with a lead of one month (see
Table 2). The description of the model and its performance can be obtained from:
http://www.theforecastingadvisor.com/background-papers.php).
The Forecasting Advisor stock market cycle model is used here to assess the risk of entering a bear
market in the next two months. More specifically, the model calculates the probability for the S&P 500
stock price index of entering a bear market for the months of June and July. The probabilities were
calculated on June 3rd using a number of U.S. economic indicators, such as a proprietary coincident
index of economic activity, the unemployment rate, interest rates, the price-to-earnings ratio, and
consumer confidence.