The last time ADR peaked above 3.5x was followed by 11% drop by S&P500
. Most recent ADR peak stood at 7.38x registered last month. That is double the 3.5x extreme level, which suggests extreme overoptimism for stocks. Usually, as history shows, it is followed by at least 10% correction.
ADR proved to be extremely useful market peak spotting tool. For explanation and historical back-test check here: