But today Alcoa reported more than double profits, over 2nd quarter 2010, of 28 cents per a share with a 27% increase in earnings. To me this indicates that the demand for aluminum has held despite a 24% increase in the price of Aluminum (Bloomberg article - Alcoas Profits Follow Rising Aluminum Prices). This should be a good sign since demand has not indicated weakness despite inflationary forces on commodities such as aluminum. Assuming the doom sayers are wrong (and they usually are) this is a solid indication that the markets will find their footing by the end of July to mid August. Be on hold to take advantage of the opportunities. It is impossible to time the market perfectly, but I will begin adding to equity positions (as the market drops) when the slope of the blue (intemediate) signal line turns negative and then begins to indicate that its slope will turn positive (levels out) or when the green (long) signal line indicates that it is going to level out below zero. See the chart below:
Click on images to see larger image.
This chart displays a measure of market sentiment (as measured by the S&P 500) on both an intermediate and long term basis. I have highlighted where historical buy, hold, and sell zones were indicated by the signal lines. One can use the bottoms of the intermediate signal line (blue) as indication for ideal periods of cash infusion in a held position. That being said, the peaks of the blue line can also indicate ideal periods for transfers out of a position.
I have also begun to work on another indicator. This indicator will try to gauge the overal value of the market relative to a benchmark such as the 10 Year Treasury Bond. Such an indicator could help indicate periods where probability for potential gain is greater than the probability of potential loss. The chart below compares the Price/Earnings Ratio of the S&P 500 to the Price/Earnings of the 10 year treasury:
Click on images to see larger image.
Click on images to see larger image.
