Market Rally And Existing Sell Signals
Since the beginning of August, the markets have staged a strong rebound, which is abnormal for this time of year, as worries about geopolitical risk were dismissed and the Federal Reserve continued to confirm their ultra-accommodative policies going forward. This rally has obviously spurred many questions asking if the rally had reversed the “sell signal.”
The short answer is “No.” As shown in the chart above the sell signals are still in place. However, if the rally continues into next week, and is fairly robust, the signal will likely be reversed.
Meanwhile…Back At The Ranch
The expected rally has now occurred with the markets breaking out to new highs. This suggests, that for RIGHT NOW, the current bull market trend continues to remain firmly entrenched. As I stated above, the ongoing injections of liquidity by the Federal Reserve continues to create an artificial support to stock prices. Also, artificially low interest rates have provided corporations with sufficient leverage to increase share repurchases which has been a major driver of asset prices over the last couple of years in particular. (Share buybacks are being used to artificially boost profits per share for reporting purposes.)
Preparing To Reverse Course
Those two inputs, liquidity and stock buy backs, are now ending which begins to put the current bull market trend at some risk. However, in the short term, as stated, the trend remains in place so we need to act accordingly by reducing the cash reserves raised over the last couple of weeks and increasing equity exposure opportunistically.
