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Time for Patience

I’ve been on vacation this week (just got back) so just a quick note about the status of some of our indicators today.  I’ll make up for the lack of market comments with some photos if they turned out.  We mentioned on Monday that our market risk indicator was warning.  That condition cleared itself on the rally that started Tuesday.  As we mentioned in that post we were giving the market the rest of the week to prove itself.  Well the week is almost over and we’re still waiting.  We’ve got an oversold bounce, now we have to see if it holds.  A couple of days clearly above the 50 day moving average would go a long way to ease our fears that this is just a dead cat bounce.

Our core market health indicators are mostly flat so far this week which isn’t encouraging considering the strong move over the last three days.  Our Twitter sentiment indicator for the S&P 500 Index (SPX) has been printing underwhelming numbers against a strong price move as well.  Traders are building shorts against the 50 day moving average and are panning the rally rather than cheering it.  There is a lot of dismay in tweets that the US Federal Reserve Board first hints at slowing bond purchases, then hints that it won’t happen when the previous statement causes instability in the stock and bond markets. The weak daily readings from Twitter sentiment is dragging smoothed sentiment down as the market rallies.  So overall we’ve got a strong price move without confirmation from our indicators.

This type of market requires patience from intermediate and long term investors.  The long term trend continues to be up, but could be in danger.  If the rally is going to fail we should see evidence from our indicators so we’ll continue to be patient (and mostly long in our portfolios) until the market and our indicators give us more information.

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