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The surge and follow-through three weeks ago
convinced the model that the S&P 500 has inflected from a primary
downtrend to an uptrend.
Accordingly, it
issued a buy signal. The
model’s standard portfolio is now positioned 100% in a stock fund
that mimics the S&P 500; the aggressive portfolio is 150% long, basis
the S&P 500.
The sell signal was marginally successful. Over its
fifteen-week course (right on the median length) the S&P lost 2%, the Dow
broke even, and the Nasdaq slid 4%. The models bought in at 1388 for the
S&P 500 (now 1414), 12825 for the Dow Jones
Industrials (13058), and 2408 for the Nasdaq Composite (2477). Since the
buy signal, at last week’s close, the S&P, Dow, and Nasdaq are up 2%, 2%, and 3%, respectively.
Given the head winds faced by the economy and the
market’s volatility, as outlined in previous commentary, this buy signal
could be a short one. It seems to
me that bullish investors are in denial and caught up in euphoric expectations
that the worst is over. The severe problems faced by consumers and
financial institutions in particular and the economy in general will not
go away anytime soon. But then,
short to intermediate moves in the market can defy logical analyses,
their attendant biases, and our emotional perceptions and states. And
eighteen years of experience with the model tells me it’s best not to
second guess it with my views. That’s why I developed the model in
the first place! My buy/sell/hold decisions were wrong far too
often. Moreover, it has given some
good buy signals in the past during scary times. The model, of course,
could be wrong this time. If it’s mistaken, it should switch back to a
sell with likely limited damage; if it’s right, we just might, just
might, post some returns in this difficult decade. Let’s see what it tells us over the
next several weeks.
NOTE
I’m into an extended multi-year cruise on the boat
and will from time to time be out of Wi-Fi and air-card range. Check date at the top for currency.
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