When Will This Correction End?

As you are well aware, on Monday morning, we received a signal from our Asset Allocation Model that we had achieved a maximum bullish configuration of Psychology, Monetary and Valuation.  This is a different story than the one we were getting in April as the conditions were starting to deteriorate.  At that time, Monetary had slipped one notch and Psychology had moved to its most negative slot.  Yet, Valuation continued to tell us that the next 4-5 years would be very profitable, but...4-5years seems like a lifetime in these volatile times.  However, we never received any indications that the bull market was in danger, and in fact, the slippage we had traditionally received said that the risk in the market would be less than 10%.  And today, we still believe that is the case.

Also, many of the individual Psychology indicators that were bearish two months ago have totally reversed now and are in good solid bullish positions (as you can see in our key indicators table below). The traditionally "dumb" investors have started running for cover, and the traditionally "smart" investors have started buying. It is not unanimous, but the weight of the evidence in Psychology is getting very good.  It is not a "bear-killing" level of Psychology, but the extremelly positive nature of Monetary and Valuation tells us that THIS IS NOT A BEAR MARKET.

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Obviously, we would like for the low point of this correction to be YESTERDAY, but those types of projections are not something that we can accurately predict.  Sometimes corrections tend to linger for a few months, building up their strength for the next real bullish surge, but then...sometimes they don't.  So, history tells us that when our Asset Allocation Model moves into these bullish zones, it is a good long-term investing discipline to accept the signal and go with it.

We all know that volatility shakes up investors, and we expect volatility to continue.  However, as the ups and downs in the market are causing nervousness to run wild, we believe that is good for an evenutal return of bullish action...just not so good for our digestion.

Don Hays 

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