an tSionna {08.05.14 & An Indicator Change}

Markets rebounded yesterday and are selling off this morning.  The rebound yesterday wasn't much of a surprise.  After four down days probability suggested some sort of a snapback was in order.  There is a certain push-pull to the markets right now.  On one hand, most of the US economic data continues to be pretty good.  Corporate earnings are coming in at a positive rate and are not suggestive of economic contraction.  Car sales continue at a record clip.  Jobs added and unemployment continue to improve.  On the other side, there are all these underlying issues that the market has to deal with.  Some of these    we discussed on Friday and back in June.   Right now, if I had to guess. I think the trifecta of Ukraine; as well as its fall out on European economies, the upcoming congressional elections {markets don't like uncertainty} and seasonal weakness are trumping the good economic news that's out there.  Given that line of reasoning, probability would suggest that the markets could face some rough slogging over the next couple of months.  

Above for illustrative purposes I'm showing a chart of the S&P 500 ETF SPY.  Many major indices have chart patterns that currently look like this or worse.  Stocks had been trying to move higher for much of the summer and in retrospect look to have perhaps topped out in July.   Stocks last week did some technical damage that is suggestive of a short term change of trend.  Thursday's decline was not only on expanded volume but took SPY down through short term support.  That support level now becomes resistance and will need to be vanquished before stocks can resume their advance.  I've noted the next levels of support on the chart above.

I noted back in June in the post I've noted above that our indicators were indicating the possibility for a  change.    To better reflect what we've been doing and what the "tea leaves" have been telling us, we are going to make a change today.  We are going to move our short term indicators to NET MARKET NEUTRAL for both US and international markets.  We leave our intermediate and longer term indicators at NET MARKET POSITIVE for both.  You can go here for a definition of what these terms mean.  Any changes we make in these indicators are based upon probabilistic analysis of market conditions and are meant to solely reflect the NET activity that has occurred in our client accounts.  We do not use these changes as a market timing mechanism.  If you are a casual reader of this blog, you should not construe these changes as a trading strategy that we employ across the board with all of our clients or attempt to emulate anything here as a personal strategy.  I have and continue to warn against this and therefore assume no responsibility if you ignore my advice.  

We raised our intermediate and short term indicators to NET MARKET POSITIVE for US equities back on October 17, 2013.   We raised our indicators on Foreign ETFs back on July 15, 2013.   On balance we've carried relatively lower cash positions during this period depending on client risk/reward perimeters and strategies.  That has changed somewhat over the past month ass we have done a certain amount of rebalancing.  I will not discuss individual security purchases or sales here but I'm happy to have a discussion with clients or readers about what we did in this area if you want to give me a call.

*Long foreign based ETFs in client and personal accounts.  Long ETFs related to the S&P 500 in client and personal accounts.  

Chart courtesy of FINVIZ.com.