An Indicator Change.

Reflecting some moves we have made in the past several days we are going to lower our shortest and intermediate term indicators  to NET MARKET NEUTRAL.  We upgraded our indicators to NET MARKET POSITIVE back on November 18, 2012.  You can go here for a definition of what these terms mean.  The market is up around 9% since we last changed our indicators.  However we do not use these changes as a market timing mechanism and if you are a casual reader of this blog you should not construe these as a trading strategy that we employ across the board with all our clients or attempt to emulate this as a personal strategy.  I have warned you not to do so and assume no responsibility if you ignore my advice.  My changes are based upon probabilistic analysis of market conditions and reflect the NET activity that has occurred in our client accounts.  As a matter of fact for some new money we've actually bought a few things over the past week or so.  But in the main for more established accounts we've made a few changes.

Here are some of my reasons for changing the indicators:

-S&P 500 had one of its worst days yesterday since this rally began right after the election.  Coming on a day after a nice market rally, this sort of reversal is worrisome particularly in an overbought market.

-Market is very overbought by our work.  Stocks trading above the 40 day and 200 day moving averages are doing so from areas where probability suggests a pullback of some sort.  For example until recently nearly 80% of all US stocks were trading above their 200 day moving averages.  This is a very high reading.  

-Markets have rallied nearly 14% from their lows back in mid-November to their most recent highs with nary a 3% pullback.  That may be too much too fast and at the very least markets may need some time to digest gains.  Remember as well that stocks can correct by time as well as price.

-Outside influences, sequestration, fears of a European slowdown questions about whether the Fed's easy money regimen may be closer to an end, slowing consumption {You know, the usual cast of characters!} may begin to weigh more heavily on stocks.

-Closer to the beginning of the seasonal time of the year when stocks have historically struggled.  

Now look, I don't know what stocks will do today tomorrow or next week, I do know that we are now entering a period where the playbook says a bit more caution may be warranted.  Adding to that I would say that in a few of our strategies we have carried very little cash since last fall and I've felt a bit of tweaking in that regard was warranted recently.  So far this is a minor cash raise and not even across every strategy that we use.  But since it reflects a bit of a change on our part I thought I would let you know what we are doing.  The playbook suggests that at times like these you keep the defensive pages of the game plan nearby and that's all we're doing at this point.

I will not be in tomorrow as I'm out calling on the outlying banks.  Next post will be Monday.