Special Bulletin: July 14, 2020

Were We Wrong?

Was our late June signal change to a yellow condition wrong? Or will it prove to have just been early? Actually, it is neither. We grant you that based on recent market action, which has been volatile but mostly up, a green light would have worked out well. But that’s not how technical internal signals work. They are objective. Not biased.  The downgrade to a yellow light (caution condition) was dictated by the internal math of the market based solely on tracking the footprints of money at that moment in time.

The key is the signals work. They are excellent at catching turns and keeping investors on the right side of the major trends. At no other time was that more visible than this past February when our Core Four signaled a Red condition on the 25th.  And also with yellow and red signals on October 4th & 10th of 2018.

Unfortunately, yellow condition signals are not always very revealing. Unless you consider the subtle changes in the market’s character that they reveal to be useful, which we do. For the record, a yellow condition does not mean sell everything (or necessarily anything for that matter). It simply means the conditions for preparing a plan of defense for your investments are present. A yellow signal is not the destination. It ultimately gives way to either a green or a red.

In our decades of market participation we have found that no perfect “holy grail” market signal exists. Many market-moving catalysts are simply unpredictable. But, the immediate reaction to them by the “big money” gives critical insights into the expected direction of the major indexes when viewed daily through the math of the market.

Our Current Market Outlook barely remains “Uptrend Under Pressure” with a “yellow” light. Two of the Core Four indicators are now green, with one each yellow and red. (see Core Four above) Please note this combination in the Core 4 is on the verge of going green.

In our June 26th post we wrote, “In spite of overheated sentiment and being extended in price, the stock market remains in a longer-term uptrend. The shift in our C.M.O. to yellow was caused by a mild deterioration in certain internals (the math of the market) that are reflecting short-term negative changes in the market’s tone. This shift suggests that a test of the 50 day moving averages by the main indexes is now more likely in the weeks ahead.” (Note: A test of the 50 day moving average on the S&P500 actually happened three days later)

There is another “down, up, down, up” pattern forming on the S&P500 chart. This occurrence is already 7 days long. It won’t last much longer. A big move one direction or the other is near. (FYI: The necessary technical conditions for a serious correction into a bear market are not currently present)

What can an investor do this week? Consider eliminating positions that show a loss and have not yet participated in the recovery. Tighten stops. Wade in with any new buys.

Have a Triumphant day! ®