Since the start of the year, the markets have not been able to advance or decline. Earlier this year we upgraded our allocation model, due to the breakout of the S&P 500 index above 1850, but have not made any real net progress since. That’s the bad news.

The good news is that, despite plenty of headwinds from geopolitical events, ongoing tapering of bond purchases by the Federal Reserve which is reducing liquidity and weak economic data, the markets have not declined. The index has consistently held support at 1850 and on a very short term basis is beginning to get oversold.

From a bullish perspective, it would appear that the markets are consolidating the advance from the lows of February which should allow markets to stage another advance into late spring. That analysis would align with both seasonal tendencies and the fact that the Fed is still pushing liquidity into the financial markets presently.

It is for these reasons that we are currently keeping our allocation models aligned with the overall market.

However, the bearish view would suggest a topping pattern. It is from this view from which we maintain and monitor our risk control measures. If the market rises, great – it is a decline in markets with which we are far more concerned. It is market declines, not advances, that destroy two of the most precious and finite items that we have – capital and time.

As will be discussed below – I have the “worry gene.” It is from that perspective that I continue to watch for what might go wrong, rather than “hoping” everything continues to go right indefinitely. With the Federal Reserve now extracting support from the markets, the risk of something going wrong has risen.

….much much more HERE