A Few Indicators We're Watching

Let me show you a few charts of where we stand this morning.

This chart above does not show indicators that affect our judgement, but if our Asset Allocation Model is starting to get a little queasy, even in the short-term, we do sometimes turn to these oscillators to help us get a solid picture of the market.  You can see how overbought the "market" was in early February, and you can also see how the orange line (the 21-Day Oscillator) has already started correcting.  We would like to see this indicator come down to at least the -50 line before we see our Asset Allocation Model improve from its recent changes.  That advice will be predicated much more on the combined action of our Psychology Composite and the level of the Value Line Appreciation Potential.  It has certainly not evolved to the conditions we hope they will in the next few months, but already there is some improvement in the last few weeks.

For instance, we have seen our OEX Open Interest Put/Call Ratio forging a very interesting pattern.

Remember, this is an excellent measure of what "smart" investors are doing.  You can see the big surge of pessimism right before the sharp market correction in 2011.  Then on the correction, their put/call ratio (pessimism) moved down sharply, but not all the way into the green zone.  From that point to now, they have weaved and bobbed, but their pessimism (top trend line) has been making lower highs.  The lower trend line, in our opinion, will be breached in the next 1-3 months as they start seeing some very good signs about long-term investing.  Their optimism will be very bullish.

Don Hays

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