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Published: May 2, 2009
My data indicate that we have
a correction coming at us like a freight train. The Counter
Cyclical Market Forecast chart (see below) is showing a rapidly
rising Composite Index (combined new Buy Signals and new Short
Sell Signals) that has moved well above the Short Sell Index.
This is much like a large tree that is in an ice storm. The tree
can withstand a lot of ice, but if the conditions are right, the
ice will continue to build up, getting heavier and heavier. The
tree's major limbs continue to hold up, but there comes a time
when the ice just gets too heavy... then, there is a
catastrophic failure as large limbs suddenly snap and come
crashing to the ground.
This 'ice-building scenario' is where we are in this
current market rally. Too much money is being poured into too
many equities. The weight of being over bought continues to grow
and grow and grow. There is not enough rational fear in the
market. Too many stocks are moving higher.
In the stock market, normally, there is a reasonable
balance between stocks moving higher in price and those moving
lower in price. In Bull markets the ratio is weighted with a
somewhat heavier bias toward the Buy side. In Bear markets, it
is weighted somewhat more toward the Bear side. However, if
ratio of Buying-to-Selling moves too much to the Buy side, the
market will always, at some point, correct back to a more
balanced ratio.
Investors who believed this was just another short-term
Bear rally stayed out, but now they are beginning to fear that
this is the great rebound into the next major Bull market. Many
are in a panic and are buying almost indiscriminately.
The short sellers are also beginning to panic. They are now
becoming fearful that this is a Bull market and their short
positions are getting crushed. They have to stop the bleeding by
covering their short positions, which requires more panic
buying.
All this panic
buying is pushing stock prices up higher and higher and higher.
In my ETF Global Market portfolio, the average holding is up
+4.5% in just the past three weeks. The average unrealized gain
in the Market Trend portfolio is a whopping +16.1%. In my
managed accounts the story is also extremely good. The holdings
in Equity I are up an average of +8% with several positions
holding +18% to +38% in unrealized gains. Equity II is holding a
very solid average of +8.4% with 50% of the positions holding
double digit gains.
This is great and although I only have 30% of the
portfolios invested, we are moving solidly higher every week.
But this will soon end in a very sharp correction. In the
meantime, I want to let my winners run, but keep the stops
tight.
I am pushing the stops higher each week and am getting very
aggressive with my stops. At this writing, not nearly enough of
the stops are above each equity's respective cost basis. This
concerns me as we could lose a lot of these profits in a
correction. As such, this week, don't be surprised if I raise
stops often. I may put on some trailing stops. My goal is to put
these profits in the bank before the correction hits.
I still believe (hope, actually) that the correction is
more than a week away, based on the Bull/Bear Rating. But,
investor sentiment could change abruptly.
Note: The
TurnerTrends Counter Cyclical Market Forecast Chart estimates
the near-term direction of the market from a contrarian
perspective. The red line (New Short Sell Index) shows a
technical direction and the degree of strength of Bearishness.
The black line (Composite Index) is the combined impact of both
the new Short Sell Signals and the New Buy Signals and is an
indication of the degree of oversold or overbought condition of
the market. Buying opportunities exist when the Composite Index
is moving higher. Market bottoms are represented by a change in
direction of the Composite Index from moving lower to moving
higher. Market corrections are projected when the Composite
Index crosses the Short Sell Index, which is an indication of an
overbought market. The market is represented by the light gray
shaded area which shows the relative month-to-month gain or loss
of the Dow.
-- Mike Turner
Editor
Mike Turner's Market Report |
