If we start from the top on this Monday morning, we find that the Market Trend Analyzer is still telling us to manage our investments according to the algorithms that have worked for the last 100 years of U.S. market history - except for that 2007-2008 flood. On March 2, 2010, this "insurance mechanism" told us that the catastrophic danger had passed and to listen to the messages provided by our Asset Allocation Model. On March 2, 2010...it was hard to believe, wasn't it? Good signals are almost always hard to believe, so that makes them that much more worthy? The Market Trend Analyzer was telling us to do something that the media, the current day crowd, politics, and the economy were not telling us to do.
Today, the Market Trend Analyzer is still telling us to follow our Asset Allocation Model, which shows Monetary as strong as it can get and the stock market Extremely Undervalued. However, Psychology is still cautious. It moved to the first tip of the red zone on January 18, 2011. We'll stay tuned, and a move to P4 at this point will be interpreted as pretty good news in this environment.
Here is my prognostication! This year you are going to see the down-trend line in the public's allocation to equities break out on the upside. What does that mean? You can see, in the chart below, the amount of cash on the sidelines today - in relation to what that cost can buy in stocks - is 99.6%. The low in 2000 was around 50%, and the cash today is as high as it was in 1994. So, this evolution is extremely positive.
Today, we would like to see Psychology conditions improve some, but the Matrix tells us to not play around with the possibility too much, and that the surprises will come on the positive side of the ledger. That is the message from our Asset Allocation Matrix - from history.
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