Technically Speaking: You Carry An Umbrella In Case It Rains

With the markets closed yesterday, it gives us a chance to review the short, intermediate, and long-term signals the markets are currently sending.

Brett Arends recently wrote an excellent piece for MarketWatch with respect to investors feeling like they “missed out,” on the recent rally. To wit:

“Sure, if you’d bought and held you’d have been sitting in stocks during the boom since Jan. 1. But you’d also have been sitting in stocks when they tanked last quarter. The Dow has risen more than 2,000 points this year, but it fell more than 3,000 in the fourth quarter. Even after the rally, the Standard & Poor’s 500 is still 6% below last September’s peak. The average level on the S&P 500 during 2018 was 2,744, says FactSet. The level today: 2,745. It’s a wash. Meanwhile, the rest of the world has done even worse. The MSCI All Country ex-US index is still 12% below its 2018 average.”

This is an important point, because it is the “psychological” drivers, like the “Fear of Missing Out (F.O.M.O)” and “Get Me The F*** Out (G.M.T.F.O),” which are the primary cause of investing mistakes over time.

But, the recent rally sure “feels” like the worst is over as the Fed “Put” seems to be back on the table.

Or is it?

The following six charts are each identical in their design. The only difference is the time frame of the data being analyzed from Daily to Weekly, to Monthly. For our purposes, we use the three time frames for making different determinations:

  • Daily – “warning signals” – Like a “yellow light” at an intersection, it suggests whether an extra-layer of caution should be applied or not.
  • Weekly – portfolio allocation changes with respect to equity risk.
  • Monthly – understanding whether the overall “trend” of the market changed. (While a “rising tide lifts all boats,” the opposite is also true.)

As shown below, you can see that the daily indicator provides an abundance of signals. While many are timely in suggesting you should have less risk in the markets, there are also plenty of false signals along the way as well. Currently , the “sell signal” has been, and remains, in place since late September of 2018. But the recent rally suggests this signal could soon reverse if the rally persists.

The following series of charts come courtesy of RIA PRO. 

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