Signals20100607 Timer Commentary
Whatever near-term noise happens in the upcoming days or weeks, we believe the market direction is down.
There are many indicators that market technicians or market timers use that have reached extremes that – collectively – are not seen during bull markets but rather during bear market rallys.
Performance of our market timing systems have been poor the first months of the year. These periods of underperformance sometimes appear around market tops. The recent improvement in signal performance may be related to the resolution of market direction.
The chart below provides one example of divergence comparing the S&P 500 to the percentage of individual stocks in the index reaching a new 200-day high:
Picture the areas of divergence as creating tension between the direction of the market and the underlying strength. The red arrows on the right show that the tension has been released to the downside.
Expect some violent swings with more sudden and perhaps violent drops.
