Remember, it all works together in a top-down portfolio discipline, and unless you are one of those rare investors who buys stocks and holds them forever, every long-term investor SHOULD adhere to a top-down approach. As you can see in the graphic below, top-down means that your asset allocation comes first, the sectors come second, and stock selection comes third.
And in conjunction with this process, when we are in a fine-tuning period, we often take a look at our short-term oscillators to gain perspective on the market's short-term actions. As you can see below, the McClellan Oscillator has just now moved into overbought territory.
Click to view larger image.
Usually you have three to five junctures in a year when the market becomes overbought, and the same on the oversold side. Neither of those signals means you are going to get immediate gratification, but they are an effective technique to help control short-term emotions, and they aid in the evolving discipline necessary to stay in tune with the market.
But while oscillators are nice to have to fine-tune portfolios, they can also regretfully be major traps if you use them in a BIG way to buy and sell MAJOR portions of your portfolio. So...the McClellan Oscillator is overbought and trend lines are hinting at a resistance zone, but even so, don't overdose on the obvious clue. Obvious clues are Mr. Market's main weapon to sucker long-term investors into acting as a herd to go the wrong way. So, take this only as something to watch for when fine-tuning your portfolio and for clues of the future.
This is a precise top-down discipline for portfolio operation that requires a continual examination of all factors. Remember, it all works together: asset allocation, sector studies, and stock selection.
To view today's complete Weekly Sector Report, click here.
Don Hays, Nicholas Warf and Justin Wood
Please see important disclosures at the bottom of this page.