The first trading day of the month was a dud.

Yesterday was March 1st and we didn't have a rally!  As you may or may not be aware, yesterday was the first time in the last 8 months that the stock market did not rally on the first day of the month, and in most cases, the first-of-the-month rally was a strong kick-off for the rest of the month.  I'm not sure what that means, if anything, but I have seen a different character evolving for the last few weeks, and even months, in the market. 

Based on yesterday's weakness, only 62% of S&P 500 stocks are now trading above their 50-day moving average.  And if you break that down, you will find that only one sector - Energy - is still in an upward trend, and that is most certainly an event-driven strength. 

Our indicators are often early, but as we've pointed out before, the trend of our Psychology Composite has been very good at foretelling a short-term correction.  And today, our composite is giving us a reading of P5, one spot from the lowest P6 rating.  But with our Monetary Composite at M1 and our Valuation Composite at Extremely Undervalued, each the strongest ratings for their category, the two have dramatically out-muscled the one weak link, Psychology. 

We believe that Monetary and Valuation have kept the market in its healthy status so far.  And as for now, we're not willing to bet on the probability of a correction with more than 10% of our portfolio's value in a defensive cash position.  We've been in this mode for several months, and we believe that the market will still give us a slightly better environment to recommit those assets into new stock purchases.

Don Hays

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