May 2nd, 2008
Although I’ve written quite a bit about the Index crossing over the 180-day moving average being important step to the MTI (Market Timing Indicator) giving a go ahead to being fully invested, we’re a long way off from a complete remediation of the damage done to the market’s health by the bursting of the housing bubble and the sub-prime launched credit crises. The chart below tells the story:
The important thing to note is that the moving averages are mirror images of each other. Last summer, the 60-day moving average was leading the pack (highest) while today it’s the 300-day. The Index itself was above all the moving averages, today it’s about to cross-over the 180-day (we hope!).
Before we can become complacent about moving to new high ground, it’s going to take quite some time for this reversal to be completed. The Index could lurch ahead to 1500 but that could be followed with some backfilling. The Index could crawl slowly uphill dragging the moving averages behind it. It took 5-6 months for the averages to flip from the Bull to Bear configuration. We should expect another 6-8 months for it to right itself back to Bull (remember, things happen much quicker going down than they do going up).
While we can celebrate a recovery in the making, it’s not here yet. A 7-8% recovery (from 1410 to 1520) can help the portfolio regain some of its health, we’ll have to be patient for the easy gains until sometime after the election.