Market Brief: Monday, September 27, 2010

This week, Psychology moved from P2 to P3.  We mentioned last week that Psychology had moved back into the mid-ranges and cited that as a sign to walk just a little slower.  Don’t start walking backwards; just take it a little slower.  That still holds.  Powerful bull markets can soar even as the sentiment surveys move into that zone that some try to sell as bearish for the market.  You never get investors to invest - today there is still a huge record amount of cash - unless some of their neighbors start to feel a little better.  So the lemmings are not even in sight of the threatening cliffs yet, so let ‘em run. 

The most important part of our Asset Allocation is the matrix we developed 23 years ago that puts the different modes - Psychology, Monetary and Valuation - together.  As of this week, Psychology downshifted to P3, Monetary is hovering right at the threshold of moving up to M2, and Valuation is at Extremely Undervalued.  That says that investors should remain at full equity exposure. 

We are true to our Matrix, and it says when you have Psychology at P3, Monetary at M3 and the stock market 38% undervalued, you should be fully committed to stocks. 

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Don Hays