The sector configuration model (the
technical basis for the Mousetrap) is no longer in "Bear Market
Rally" status after today's action.
XLY
|
Cyclicals
|
Bottom
|
XLK
|
Technology
|
Bull 1
|
XLI
|
Industrial
|
Bull 2
|
XLB
|
Basic Industry
|
Bull 3
|
XLE
|
Energy
|
Top
|
XLP
|
Staples
|
Bear 1
|
XLV
|
Services
|
Bear 2
|
XLU
|
Utilities
|
Bear
3 (Here)
|
XLF
|
Finance
|
Bear 4
|
That said, this market is impossible
to micromanage. When I began the test on 5/31/2011 the sectors were already in
bear market status, and went into rally mode at the end of October.
In the course of these gyrations the
broad market has gone nowhere.
But neither has it crashed. We can
cry that the sky is falling, but if Bernanke keeps lowering the ground, what
would it matter?
I’ve been hedged for a year now. I
don’t go all short on this methodology, though I’ve been tempted.
In any case, when the market forms a
bottom or a top, it bounces around while institutional investors shift between
bullish and bearish sectors. In the past few weeks the money has been flowing
out of bullish sectors (listed above) into bearish ones. This should precede
another leg down in the market, unless either the Europeans or Bernanke can
pull yet one more rabbit out of their seemingly bottomless hat.
Since I'm hedged, there is no need
for me to change my current positions. Actually, I'm slightly net short on some
discretionary positions -- but those are not part of this model.
I'm not looking at a serious
decline... yet. The chosen short position is still utilities. If that changes,
it would increase the seriousness of the potential decline.
Tim
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