If you have been reading us as of late, you know that we have been closely watching our Psychology Composite for improvement, since it's been the only weak leg of our Asset Allocation Model for quite some time now. On Wednesday, we moved to a fairly neutral rating of P4 (P1-best, P6-worst) from a very negative rating of P6 that we received on May 9th. And then this morning, following yesterday's market actions, our Psychology Composite has finally reached postive territory coming in with a rating of P3.
It is very comforting to see the Psychology Composite move back to P3. That is not a bear market bottom reading, but for the first time since early in this new bull market, it is now supporting the very strong Monetary and Valuation Composites, each currently at their most bullish levels. We have been wistfully wanting this, but not expecting it.
Also, to the consternation of many of our readers, our Market Trend Analyzer remains in it's "Investment Phase," which as you remember, was entered in the Spring of 2010. Today, the short-term moving average has crossed the medium-term moving average; however, the medium-term and short-term moving averages remain above the long-term moving average. There is no real way to tell how long it may take to trigger the Market Trend Analyzer. As an example, this technical tool and safety net for our Asset Allocation Model did not trigger last summer during the correction that had everyone on the edge of their seat. And sure enough, following the distress of the Summer, the market rallied into the end of the year.
We have never seen a momentum system that can call every wiggle in the market. We use our Asset Allocation Model (Monetary, Psychology and Valuation) to identify significant turning points in the market and the Market Trend Analyzer to help us identify the panic times. We are not there now. Right now, we are focused on our rapidly improving Psychology Composite.
We always remind ourselves that there are no guarantees in life...or in the stock market. But if you look at every bear market of the past, you will not find one that started in the midst of experiencing the strong combination of Monetary Conditions, Stock Market Valuation, and now, Investor Psychology that we are experiencing today.
Yet like you, Mr. Market does all it his power to keep us sweating. So, with wet palms, we'll continue to watch our instrument panel for clues as we remain bullish, and we will keep you posted as we progree through this market.
Click here to read today's full Market Comments by Don Hays and Keith Hays.
Don Hays & Keith Hays
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