“The current bullish uptrend remains intact which requires that we maintain exposure to the equity markets for the time being.”
Leading up to last week the threat was that if the government was shut down that the markets would tumble. I made it clear that this was unlikely to happen as the “markets” have seen this before, and with the Federal Reserve remaining fully committed to artificially inflating asset prices, there was little downside risk present.
So, for all the “fuss and turmoil” the markets really paid very little attention to the antics in Washington.
While market volatility certainly increased in the past week – there was no violation of any support levels or the current bullish trend. In fact, as I stated this past week in our daily blog posting:
“As you can see the market reached its peak in July as the Federal Reserve reiterated its position that it would not be tightening its accommodative policy anytime soon. That rally from the June lows had taken the markets to an extreme overbought condition that needed a correction/consolidation process to resolve. However, it is important to notice that the May/June correction NEVER triggered a ‘sell signal.’
The significant difference is that the correction which began in August took the markets down to the longer term uptrend but triggered the issuance of a “sell signal” in the process. This change in dynamics required our models to reduce equity risk by 25%. (Portfolio models are holding 75% of target equity allocations currently.)
The subsequent market bounce, following a collision of announcements in September with Larry Summers stepping out of the race for Federal Reserve Chairman, ostensibly putting Janet Yellen in the seat, Obama stepping back from military action in Syria and the Federal Reserve not “tapering” their current bond buying program at their September meeting, seemed like the selloff was over.
However, that rally failed on two levels:
1) The markets failed to break out to a new high; and
2) The “sell signal” was not reversed.
This suggested that the corrective process was still in play, and despite the rally, kept the portfolios holding increased cash positions.
The recent government shutdown/debt ceiling debate drama is certainly providing the necessary catalyst for the continuation of the current corrective process. However, the markets, at this point, have not violated any short/intermediate/or longer term support levels that would warrant significantly reduced equity exposure. The current bullish uptrend remains intact which requires that we maintain exposure to the equity markets for the time being.”
The rally off of that short term weekly support on Friday kept the markets in play for the time being. However, the upcoming debate over the debt ceiling certainly puts the markets at risk in the short term and is something that we should remain very mindful of.
>> Read More. Download This Weeks Issue Here.
About Lance Roberts
Lance Roberts is the General Partner & CEO of STA Wealth Management, Host of the “Streettalk Live” Daily Radio Show (streamed live at www.streettalklive.com), and Chief Editor of the X-Report and the Daily X-Change Blog.
Follow me on Twitter: @streettalklive
