The market sentiment signal appears to be a very good indicator so far as to when to avoid entry and reduce exposure to the market. However, the intermediate signal has still not indicated that we have entered a buy period, although earlier this week it appeared to begin leveling out. However, the last couple days eliminated this trend change driving the intermediate and long term signal lines even more negative (see the chart below - click on chart to enlarge):
The intermediate signal will likely trigger a buy period in the next several weeks. Therefore, we need to consider the worst case scenario in our recent history, and keep the following information in mind when developing a purchase strategy. I recommend developing an incremental purchase plan. Keep in mind that earlier purchases can result in higher returns, but are the highest risk entry points since a trend is not fully confirmed. As an example I have included a chart of the 2008 buy period below (click on chart to enlarge):
The chart above shows that buy period was signaled from approximately March 2007 until April 2009. During this buy period, six (6) intermediate buy signals triggered and four (4) long term buy signals were triggered. It is important to note, that during this period the slope of the 200 day simple moving average was negative. As of right now the slope of the 200 day simple moving average has plateaued and is threatening to turn negative. This may indicate that we are in for a similar long term bearish period (or buy period), and one may want to be very conservative about the entry strategy and apply more weight towards the end of the buy period rather than the beginning.
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