Market Brief: Monday, November 15, 2010

So, we are now 13 days past the election, and if you endured some of the Sunday news analysis shows as we did, then you were told all kinds of possible scenarios.  Last week, we had earnings reports that were a little more subdued than the knockout upside surprises of the prior weeks, and, of course, Ben Bernanke was heralded as the dumbest guy on the block with his "insane" QE2. 

We've been seeing some "short-term" cautious thresholds of our Psychology Composite get kissed for the last few weeks.  Recently, you've seen the market reach those classic "overbought" levels that often precede a "pause-to-refresh," along with the percentage of stocks in the S&P 500 that were above their 50-day moving average hit that magic "pause" level of 90%.  So today, we do have our Psychology Composite nudging into that P4 category, as you can see in the chart below.

The real secret of our Asset Allocation discipline is not massive dependence on just Psychology; instead, it is the matrix that puts the three components together and analyzes how history has treated those combinations and recommends a "long-term" investment strategy.  Today, that matrix says that, despite the "walking slow" signal from Psychology, investors should remain with their maximum exposure to stocks and minimum to cash and bonds.

Yet, in the mood American investors find themselves, they are absolutely paralyzed by the abysmal spirit that is overwhelming the country.  It's not unique.  We're always victimized by a lemming-like herd sentiment.  It is always so easy to look back and see how foolish we were, but at the moment, it is overpowering. 

However, our theme for the next 10-20 years is still the amazing Technology Revolution that is promoting a Capitalistic and Democratic world.  It is indeed a Global Renaissance.  Remember, the stock market reads tomorrow's headlines.

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Don Hays

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