The Camouflage of the Last 37 Days is Over

Short-term analysis of the stock market is a loser’s game. As you are so well aware of, we are quantitative in our analysis, but as we always have to put some flesh on the bones, we get the reading from our best indicators and then observe the potential news front. If we find something that fits our indicators, we throw that out as the most possible headline for tomorrow—reading tomorrow’s headlines today.

So today, we have enormously bullish readings on Monetary and Valuation—it doesn’t get a lot stronger. But we advised you on Tuesday that our Psychology Composite had slipped to P5 (next to the lowest rating), and we’ve spent the last month, since mid-December, with an overbought stock market that was showing internal signs that the latest rally did not have the same vigor as in the previous rallies.

As of Tuesday, we’ve had 37 days in a row that the S&P 500 has not lost 1% in any one day.  Often, as the market is trying to find a time to correct, you see the signs  are given early, but it seems Mr. Market tries to see how strong you are as he throws one more "camouflage" rally in, usually with the major indices making new highs. But internally, you can see the deterioration developing.

So, what's the bottom line?

Click here to read this week's Weekly Sector report.

Don Hays

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