Last week I posted that the S&P 500 was indicating that it was set to decline. All signals seemed to be pointing in that direction, but instead it posted a 1.35% gain for the week. Technical signals are not always right. They only improve your odds of being right.
Last week the strength of this market has pushed the long term sentiment signal (green line Chart 1) to close above the zero signal line (a close above zero indicates that the bullish sentiment has fully confirmed). Last weeks price movement has also shifted the intermediate sentiment signal (blue line Chart 1), to change direction so that it no longer has a negative slope and not clearly indicating decline. Since the long term sentiment signal line has crossed zero we are no longer in what I can call a "buy" period. Instead we are moving into a hold period. However, it could be prudent to take additional equity positions during this period if the market experiences a "significant decline" while the long term sentiment signal maintains a positive slope (strategy-principle 2). A significant decline is any move below the expected weekly trading low as shown in Chart 2 below.
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