We've been craving for the market to get busy plastering over those spreading cracks in the "Wall of Worry" since mid-January when our Psychology Composite first moved to P5. The first little hint that Psychology was weakening came in November of last year, and even though our Monetary and Valuation legs have maintained maximum bullishness, when Psychology gets out of kilter, it often distorts the healthy action of the bulls. Yet, the bull market usually continues to move forward during these events, even though it often has symptoms of dysfunction. And so far, we've certainly seen that.
When you look at the performance of the sectors, you can see that the three sectors currently supporting this market are Healthcare, Consumer Staples, and Utilities. And every one of these sectors has one thing in common - a personality that is based on DEFENSE, NOT OFFENSE.
So today, our Psychology Composite is still at P5, but there has been a big counter action today. Monetary has moved to its most bullish level of M1, as a result of lower interest rates. M1 more than compensates for P5, so our Asset Allocation Model now says to go back to being fully invested.
We believe that this transition has set the stage for a little healthy fear to restore the "Wall of Worry" and give a rampaging healthy bull the foundation to charge up higher.
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