How quickly things change! For the first time in years, several of our long-term indicators have turned negative. Between August 31st and September 3rd, therefore, we greatly reduced our market exposure (the amount varied by strategy rules). Currently, our US Market, International Market, and Bond Market indicators are all negative. This leaves Cash/Money Market as the strongest asset class in current conditions. And while that isn’t particularly exciting, the potential risk-reward trade-off is significant.
Statistically speaking, since 1926, the likelihood of the month of September ending positive is slightly less than 50%. Not great odds, that’s for sure.* In our opinion, coming into this September, there has been an unusual amount of negativity in the world and domestic markets. There is also a lot of buzz out there about how it has been seven years since a major market correction, and how seven years has been the usual span of prosperity between major down-turns.
What we see , independent of market sentiment or “buzz,” is an interesting set-up. Over the past four years, there have been three similar “dips” in the market. What is different this time? Each previous dip resulted in a quick rebound, and the up-trend promptly resumed. This time, instead of a rebound, we have stayed volatile and really haven’t resumed much of anything. Also, several key moving average lines have been broken and have not retraced.
The (above) Chart is the Weekly S&P 500 From January 1, 2000 to September 10, 2015
This month’s chart of the S&P 500 shows several crossovers of the 10 and 50 week moving average. Last week we had a negative crossover that looks similar to the tops of 2000 and 2007. In the chart, going back to the year 2000, the Red vertical lines show a negative crossover and Green vertical lines show a positive crossover. Historically, it looks like this signals either short term market noise, or the beginning of major market corrections. We are certainly keeping this in mind going forward.