How We Read the Cycle
We track 5 core indicators that historically precede major market corrections. No single indicator is a sell signal. But when they converge — when 5, 6, or all 7 are active simultaneously — the pattern matches every major crash in modern market history.
Shiller CAPE P/E Ratio
Cyclically adjusted price-to-earnings ratio. Smooths earnings over 10 years to filter noise.
The single most reliable long-term valuation metric. Every reading above 30 has preceded a correction of 20%+ within 3 years. Readings above 38 preceded the 1929 crash, the dot-com bust, and the current cycle.
39.8 as of February 2026. 99th percentile of all historical data going back to 1871. 78% above the long-term trendline. Historical average is 17.7.
Insider Sell/Buy Ratio
Ratio of corporate executives selling their own company stock vs buying it. Insiders know their businesses better than any analyst.
Insider selling spikes before every major top. When the people running companies are dumping shares at record pace, they're telling you something the market hasn't priced in yet.
4.83x sell/buy ratio in January 2026. Nearly 1,000 executives sold vs 207 buyers. Biggest gap in 5 years. This exceeds the peaks before the GFC, dot-com bust, and COVID crash. All-time high.
ABA Credit Conditions Index
American Bankers Association survey measuring lending conditions across the economy. Below 50 = contraction. Above 50 = expansion.
Credit is the plumbing of the economy. When banks tighten lending, businesses can't borrow, consumers can't spend, and the cycle turns. Credit contraction has preceded every recession since the index was created.
37.5 in Q1 2026. Fifth consecutive quarter below the neutral 50 line. Business Credit Index at 41.7. This is sustained contraction, not a blip.
Margin Debt
Total borrowed money used to buy stocks, reported monthly by FINRA. When investors borrow heavily to buy, they're forced to sell when prices drop — creating cascading liquidations.
Extreme margin debt amplifies crashes. The unwinding of leveraged positions is what turns a 10% correction into a 30% crash. Every major crash has been preceded by record margin debt.
$1.28 trillion in January 2026. 8th consecutive record high. Up 4.4% from December alone. Real margin debt has grown 505% vs market growth of 331% — leverage is outpacing fundamentals.
Conference Board Leading Economic Index (LEI)
Composite of 10 forward-looking indicators including manufacturing orders, building permits, stock prices, and consumer expectations. Designed to signal turning points 7–12 months ahead.
The LEI has successfully signaled every recession since 1960. When it falls for 6+ consecutive months, a contraction is either underway or imminent.
Fell 0.1% in January 2026 to 97.5. Down 1.3% over six months. Consumer expectations component retreating. The index has been in decline trend.
Why convergence matters
Any single indicator can give a false signal. CAPE was elevated for years before the dot-com bust. Insider selling spiked in 2018 without a crash. Credit tightened briefly in 2015.
What makes the current environment different is convergence. When 5+ indicators align simultaneously, the historical record is unambiguous: every instance has preceded a correction of 20% or more. The question is not whether — it's when and how deep.
Current convergence: 6 of 7 late-cycle signals active. The only comparable periods in modern history are 1929, 1999–2000, and 2007–2008.
| Source | Recession Probability |
|---|---|
| JP Morgan | 35% |
| RSM | 30% |
| NY Fed model | 18.7% by January 2027 |
| Market overvaluation | 119% to 196% depending on indicator |
The data is clear. The question is whether you have a plan.
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