This market-timing model nailed the 2022 meltdown. Now it’s warning that stocks are a ‘dead cold sell.’

A little-known market timing indicator with a spot-on track record has just flashed a “dead cold sell” signal.

The indicator appears in the Value Line Investment Survey, published weekly by Value Line VALU. It is the median projection from the firm’s analysts of where the 1,700 mid- and large-cap stocks they track will be trading in three to five years. Devotees of this market-timing indicator refer to it as VLMAP, for Value Line’s Median Appreciation Potential.

The “dead cold sell” prediction is attributable to Daniel Seiver, an emeritus economics professor at Miami University (Ohio) who currently teaches economics at California Polytechnic State University in San Luis Obispo, Calif. As far as I can tell, Seiver was one of the first advisers to discover the VLMAP’s market-timing potential.

In addition to recommending the Value Line model in his 1986 book, “Outsmarting Wall Street,” Seiver has been using the model ever since in his investment newsletter, The PAD System Report. (Disclosure: Seiver’s newsletter is not one of the services that pay a flat fee to my performance auditing firm to track their returns.)

For Seiver, A VLMAP reading of 100 is a buy signal. Such a reading corresponds to a projected doubling of stock prices over the subsequent three- to five years.

The last time the VLMAP was that high was in April 2020, following the waterfall-like market decline that accompanied the initial COVID-19 lockdown. (To read the column I wrote about it at the time, click here .) Since then, the S&P 500 SPX has produced a total return of 21.9% annualized — more than twice its historical average.

Now the VLMAP is at the opposite end of the valuation spectrum from April 2020. Its current reading of 35 is a sell-signal in Seiver’s analysis. Though the human tendency is to extrapolate the recent past into the indefinite future, a contrarian approach is the better bet. The last time the VLMAP was as low as it is today was at the market top in late 2021, just prior to the 2022 bear market.

The VLMAP’s excellent record over the past five years is consistent with its longer-term performance back to the 1960s, when Value Line first began publishing the model. As you can see from the table above, the VLMAP does an excellent job at both the three- and five-year horizons identifying future periods with higher and lower returns. The table also shows that much of the VLMAP’s accurate record comes from its return in the first year after falling to 35 or rising to 100.