February 15th, 2011

Conquer Your Fears

Eddy Elfenbein, the editor of the Crossing Wall Street blog and named by as the “best buy-and-hold blogger”, whatever that might mean, just did a piece in his blog in which he wrote that “The S&P 500 continues to hold above its 50-day moving average. We’ve been above it every day since September 2, 2010. This is the 11th longest streak since 1932.” The statement was followed by the following chart:

Unfortunately this statement of fact wasn’t accompanied with any judgment or opinion. My guess is that Eddy is joining the crowd who believe that this bull market is running out of steam and will soon enter into some sort of correction.

As long-time readers here know, I have my own market timing indicator based on a 60 year study of the relative position of the S&P 500 Index in its 4 moving averages (50-, 100-, 200- and 300-dma) which I’ve since translated into a simple “Market Security Meter” similar to the Homeland Security’s Terror Alert system (see October 22):

Subscribers to Instant Alerts see the current status of the Meter on each alert emailed. Although the meter has been signaling Green since October 22, or the past 80 days, Eddie’s table got me wondering how this streak compares to previous when the meter also signaled Green?

This has been a nice run but it is still 30 trading days shorter than previous bull runs in this decade. I’m not going to leave you hanging; in my opinion:

  • There’s still some time left (as measured in trading days) before the market begins consolidating
  • There’s still some upside left to the move, perhaps even to the 1425-1440 level

No one can predict the market’s direction so we shouldn’t become frightened by the pessimists, the contrarians, those “talking heads” who say the market has come too far, too fast. Walking away from the market prematurely may relieve anxiety but it leaves money of the table. Wait for the market to tell us when it’s time to exit.

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