I wrote last week that we were “jumping the gun” by upgrading the model allocation in anticipation of a “buy signal” coming this past week.
“While I point out these bigger concerns the simple fact is that last week the market broke above double top resistance and has already pushed halfway to our initial goal of 1800. This surge was a ‘relief rally’ due to the resolution of the debt ceiling debate driven by both short covering and pent-up liquidity from the Fed’s ongoing monetary interventions. This rally also begins the reversal process of the previously issued confirmed ‘sell’ signal.
As you can see in the lower two parts of the chart the ‘buy alert’ signal is just a “hairs breadth” away from being triggered. Historically speaking it is an extremely rare event that a ‘buy alert’ is triggered without a ‘confirmed buy signal’ following.
Of course, as I always discuss, by the time these ‘buy/sell’ signals are issued the markets are simultaneously pushing short term overbought/sold conditions. Such is the case presently.
Therefore, as investors, we should look for very short term ‘dips’ to further increase equity exposure in portfolios. As I have discussed in the past – when the markets are within the confines of a ‘bullish trend’ investors should ‘buy dips’. It is within the context of a ‘bearish trend’ that investors ‘sell rallies.’
This brings me to our next course of action – raising the equity portion of the allocation model back to 100% exposure. This is for two reasons:
- it is highly likely that the current momentum in the market will likely reverse the current sell signal next week, and;
- we are moving into the seasonally strong investment period of the year.”
