Psychology Improves to P5

The calendar keeps rolling along, and it seems that what goes around, comes around...and round and round and round.  We always love to read Ecclesiastes in the Bible.  Well, maybe not love, but we recognize the wisdom that we need to understand as Solomon tells us that we are just "chasing after the wind."  It does seem that way sometimes, doesn't it?  We do recognize that when the heat of the moment passes, so often we find those super stressful moments "meaningless" in the whole scope of things.  I'm not sure why I remembered that theme this morning.  Perhaps it was writing that check to the US Treasury, or maybe it was the Sunday talk shows, but it does apply.  Look at the chart below.

Click to view larger image.

This chart obviously plots a piece of information that comes from a fraction with a numerator (money) and a denominator (S&P 500).  So, the denominator has doubled, the quotient is one-half, and that tells you there is even more money on the sidelines today than at the bottom of the market in March 2009.

So, where do we stand today?

A few weeks ago, Psychology moved to P6.  And this week, we've seen a slight improvement to P5.  However, you can see that very little improvement has been made internally so far, but we do believe the process is starting.  Our Matrix says to hold a 10% cash position, which is sort of like a weather forecast suggesting that there is a 10% chance of rain.  Not many people would stay home with those odds, and we won't either, but it does increase the odds of a "needed" corrrection.  In fact, we've been giving you regular updates on an internal correction that has been occuring in the broad market since last September-November.

Yet, it is not often in your life that you have a combination of a Monetary reading of M2 and a Valuation reading of Extremely Undervalued.  And this interlude of queasy Psychology could give you one more chance to take advantage of these optimum conditions.

To view today's complete Market Comment, click here.

Don Hays

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