As posted last week on June 27th, I stated that the intermediate signal line was indicating that the market was likely to recieve a short term bounce. The market proceeded to bounce indeed:
"It was the 29th best week for the stock market out of 3,207 weeks since 1950. That would put it in the top 1% of all weekly rallies over the past 60 years." (Erik Swartz - July 5th, 2011 - Minyanville). This rally indicates that the general market believes support has been demonstrated at the March 2011 lows (S&P 500 at 1256). However, it is my opinion that it is still premature to make a long term entry. I believe entering a position at this time is still too risky. Any weakness in the market as a result of second quarter earnings, european/US debt crisis, Chinese interest hikes, or any other bad news will likely drive the markets lower. Therefore, I would recommend waiting until a long term trend has been established, but if you want to take a risk; wait till this rally has receded to add to or enter a position. I still expect the next buy peirod to be triggered later in the third quarter 2011.
S&P 500 P/E Ratio Currently at 23.64 (historical mean P/E is 16.4)
http://www.multpl.com/
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.
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