If you spend enough time in the markets, you’ll notice that everyone has a favorite indicator. Perhaps you even have a favorite or two of your own…

I’m always a little skeptical when someone tells me they have one that’s “foolproof” or infallible, and some I find to be more useful than others. In fact, I’ve developed an interest in a pet indicator of my own recently.

I don’t know whether it will tell us anything definitive (yet), but I find it utterly fascinating. Want to know what it is?

It’s the number of ships waiting to enter the port of Long Beach, and the average wait time for them to enter.

That may seem like an esoteric metric, but if you think about it, it can tell you a lot about the state of supply chains in the United States. As we all know, industries across the country have struggled to get things up and running, and there have been shortages of many items, from ammo to microchips, and more.

Now, one would think that things would be easing up a bit by now. But in Long Beach and Los Angeles, the situation has gone from bad to worse. As this article, from FrightWaves.com points out, a record 65 containerships are sitting in San Pedro Bay, just waiting to enter. And further down the chain, things only get worse once that cargo gets into the terminal…

“How constrained is the flow? Port of Los Angeles Executive Director Gene Seroka said during a press conference on Wednesday that container dwell time in the terminal “has reached its peak since the surge began” and is now six days, worsening from 5.3 days last month. On-dock rail dwell time is 11.7 days, not far below the peak of 13.4. Street dwell time (outside the terminal) “is 8.5 days, nearing the all-time high” of 8.8 days, said Seroka. It has worsened from 8.3 days a month ago.”

I encourage you to check out that piece for more fascinating info, including a wide-angle aerial video where you can see all of the ships just sitting in the bay waiting to enter.

This comes at a crucial time for retail in particular. Port authorities generally begin to see a spike in traffic at this time of year, in anticipation of the holiday shopping season. But this has exacerbating what was already a dire situation. In a separate piece, the aforementioned Seroka was quoted in a Q&A summing up the situation in a rather frank way that doesn’t leave you feeling very encouraged…

“The railroads are full. The warehouses are full. Port terminals are full. Ships are coming in and waiting to get worked. The factories are behind in orders. This incredible demand has got everybody in the entire value chain just clipping out at levels we never could have imagined — and it’s still not enough.

“We’ve still got so much cargo coming in. We were on the phone with a big retailer this morning and they said that they’re still going to need another year to get inventories up to a level they think is appropriate.”

Seroka went on to detail how complex the situation is just in the port. A surge in demand, limited capacity, warehouse worker shortages, social distancing requirements, trucker shortages, outside factors contributing to those labor shortages (like enhanced stimulus benefits), the list goes on…

So let’s put this into context. We know there have been shortages for a while now. But will the situation materially impact retail sales in the all-important holiday season?

Only time will tell. But it may be a good idea to get your Christmas shopping done early this year. Also, be careful with any consumer spending and retail names as we enter the home stretch of 2021. Pay close attention to what executives are saying about inventory and supply chains, and don’t be surprised if they struggle to meet demand in the fourth quarter.

Editor’s Note: Speaking of pet indicators, my colleague Jimmy Butts has spent the past few weeks telling readers about one of his favorites.

In short, it tells us just how many stocks are actually participating in the bull market right now. Answer: not many. Below, Jimmy explains this indicator, what it tells us about the “health” of the bull market, and why we should be concerned…

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Checking In On One Of My Favorite Indicators

To be honest with you, I’m at the point in my life and career where I no longer care if I’m “right” about what the market will or won’t do. And honestly I very rarely try and predict what it will do.

I’ll settle for being right more than I’m wrong. But make no mistake, at the end of the day, my chief concern is making money.

If I do make a prediction or believe something will happen, I no longer get entrenched in that belief. I can and will change my mind as I recognize what’s unfolding in the market, as opposed to what I thought should happen.

In two recent pieces (here and here), I’ve warned that a correction could be on the horizon. My reasoning was because one of the favorite market indicators that I follow flashed warning signs.

That indicator is what’s known as the AD Line. In short, it tells us the number of advancing stocks compared to the number of declining stocks.

I like to think of this as a peek under the hood of what’s happening in the market. Here’s how I described it back in late August:

“You see, when you are in an uptrend you want a lot of market participation, or many stocks that are also reaching new highs. This is a signal that the bull market is healthy, and confirms the bullish trend. However, if the AD Line fails to keep pace with the underlying index, this is a sign of weakness in the market, signaling a bearish divergence.”

What This Indicator Says Now

I’ve been making a point to keep checking in regularly on this indicator over the past few weeks, because it continues to show that there’s an underlying weakness in the market.

As you can see, the market reached a new high on September 2 (just days after I told readers I was still cautious). But the AD Line didn’t support that new high, flashing another bearish divergence instead.

Again, as I said in my previous two pieces, this indicator isn’t bulletproof. But it has a strong history of telling us when to be cautious.

Right now, the jury is still out on whether this was a false signal or not. The market has been pretty choppy since I first started updating readers on this.

Action To Take

My advice would be to put yourself in a good position to weather a correction if it does indeed come. Have a decent portion of your total portfolio in cash. Not so much that you miss out on the upside, but enough to be ready to strike if a correction does come.

I don’t know if a correction is looming. I can only go off what the market, sentiment, and the various indicators I follow are telling me.

Would it be great if the market corrected so I could stand on my soapbox and tell everyone I provided forewarning? Not really.

I’m not interested in being “right.” I’m interested in making money, and perhaps more importantly, not losing money.

So, I’m remaining cautiously optimistic. I’m still making additions to the portfolios of both of my premium services, but I’m looking for opportunities to cut some dead weight in our portfolio. I’m also setting some hard stops on a couple of our trades in case the tide does turn.

If you’re more heavily invested in the market with little dry powder, think about raising some cash. You can do this either by pulling some profits or cutting losers, or a combination of both.

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