Sunday, June 17, 2012

S&P 500 Tentative Sell Signal Formed

Last week the S&P 500 triggered a tentative sell signal (see Chart 1 below).  This indicates that it is now time to begin looking for opportunity to reduce long positions in equity markets (always incrementally).  I break down sell periods into two phases a "Tentative Sell" and "Sell" period.  Historically there have been some reversals of a Tentative Sell signal, but sometimes the Tentative Sell period could be the best time for gains.  Based on the current slope of the long term signal it appears that both phases of the sell period will last about 2 months.   What I find interesting though, is that we are beginning to see the slope of the 200 Day SMA turn positive.  This is usually a signal that we are at the beginning of long term market gains (look back at July 2010 as reference).   Therefore, I will begin to re-balance my portfolio to be about 50/50 by mid August (50% equities, 50% bonds, secure assets, and cash).

Important Note: If invested in mutual funds make sure to not violate the funds rules when selling.

This weeks expected trading range is +/- 3.30% of between 1,299 and 1,387 as shown in Chart 2 below.

Chart 1: 06/15/2012 S&P 500 Sentiment Signals

Chart 2: Week Of 6/18/2012 S&P500 Expected Trading Range

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Sunday, June 10, 2012

Up, Down, Up ....

For the last 5 weeks the S&P 500 has sea-sawed up and down, and after last weeks performance of 3.73% I wouldn't expect a repeat, but the intermediate signal in Chart 1 is indicating that the market is improving.
The close last week fell outside of the expected trading range (above 1,322).  However, the long term sentiment signal is likely to indicate the first tentative signal to sell within the next 2 weeks.  With the intermediate signal improving it may be the perfect time to begin incrementally transferring out of equities into bonds or secure assets.  If the intermediate signal maintains its trajectory.  I would time my transfers to begin after the intermediate signal crosses zero.
Chart 1: 06/10/2012 S&P 500 Sentiment

Sunday, June 3, 2012

Lions, Tigers, & Bears Oh My! What To Do?

Last week the S&P 500 declined 3.1%.  This decline also resulted in a close below the 200 SMA, but the S&P 500 also just barely closed within its expected trading range of 1273 and 1,363 (still statistically normal).  The constant negative economic news out of Europe and a poor jobs report seems to have pushed many investors to sell (in my opinion - early).   Although it doesn't appear probable, signals are indicating that we are likely to see a short term rebound by the market.  I am convinced that Europe is going to do everything it can to try and assure everyone that the system is not going to collapse.  I don't know what rabbit they are going to pull out of the hat next; but I am convinced that they will, and it will initially be successful at kicking the can along a little more.  I expect that eventually there will also be somethings offered along the lines of cross border deposit guarantees that will bolster those beliefs.  =

Based on the "Sentiment" signal in Chart 1 below, it suggests that it is still too early to sell, and one should wait until the first "Tentative Sell" signal indicates.  As displayed in Chart 1 below, the slope of the long term signal appears to suggest that we could see the first "Tentative Sell" signals as early as mid June.  However, the intermediate signal appears to be at a possible inflection point indicating that the probability of a short term market rebound is likely.

The expected weekly trading range, for the week of June 4th, 2012, as shown in Chart 2 below, is between 1,234 and 1,322 (or +/- 3.47%).

Chart 1: 06/01/2012 S&P 500 Sentiment