The one missing link to having a rip-roaring all-encompassing bull market is still missing. Our Psychology Composite still remains in a negative P5 condition.
That doesn't scare us that much. It just tells us to continue to expect dysfunctional stock market action, and it also tells us to pay particular attention to our sector studies to help us pick up on the areas of dysfunction. In April, as our Monetary Composite dipped slightly to M2, we got the signal that the stock market was slightly vulnerable - but the keyword here is "slightly." Our matrix told us at that time to raise 10% cash, which when you put that in the context of the model also recommending a 90% postion in stocks, the overall message was definitely NOT bearish - just slightly defensive.
But as the tsunami and the nuclear meltdown in Japan idled most of Japan's automobile parts industry, and as that effect spread to the US car producers and car buyers, the Fed and the market started building up the necessary fuel (money) to feed a slowing economy. That was the background for pushing our Monetary Composite (and our Asset Allocation Model) back to its most bullish stance of M1.
We LOVE M1 ratings, and you should love them too, as we have shown you so many times how bullish the ranking is. So, M1 certainly trumps P5 in our allocation, and last week we started the process of getting our portfolios back to a fully-invested posture with maximum exposure to equities.
So now, we're just hoping for a return in our Psychology Composite to P3, at least, to get all three horses (Monetary, Valuation and Psychology) pulling in the same (and right) direction.
To view today's complete Market Comment, click here.
Please see important disclosures at the bottom of this page.