Several weeks ago I guessed there was a possibility that US stock markets could top out early last week. The guess was based on market volume studies and market participant behavior and not on the stars or even the tides. And it required the market to do certain things to get to a sell. Clearly that was a bad guess from a short term trader's point of view. The market stalled a bit and the volume and behavior signals were pushed out in time at least to this past Friday.
S&P500 24 hour December futures made a high of 1095.50 last Friday, October 16, and by tonight they have been down as low as 1076.25 so far. That is just two ticks under the high of last Monday, October 12. Market irony, no?
In the meantime my favorite and very simple 2CS didn't quite get to the 70's, but it did drop to 81.90 on Friday from 129 on October 2, the Friday before my Sunday guess. Also my favorite volume study rose greatly from October 2 to October 16 at least into an exuberance range although toward the low end of that exuberance range.
As you know if you've been reading me a while, I tend to phase in and out gradually, so I did get out of some of the more volatile energy and gold holdings last week. But there is still more to sell. The only question is how "urgently" to do it. Again this involves a semi-educated guess. Friday's one day 2CS number was slightly under the average for the week even though Friday was a down day for S&P500. So there was definite exuberance during a pullback. It's normal to get increased exuberance in a pullback after extended advances, and this is the first one I've seen since March. It's a sign of the first admission of defeat by the bears. Often the bulls will take this as a way to force the bears into the market by rallying some more.
Personally I am taking this as reinforcement of my plan of gradual exit of equity and commodity related investments. I am going to have to sell down somewhat more in sub-investment grade bond vehicles and in some stock/bond funds whose bonds are mainly investment grade.
I don't think the bull move from March 2009 is over, but we may get a bigger correction than we have had to date. Naturally I am well aware that I may be wrong and too early. Declining now goes against the stocks seasonal but not the October decline history of recent decades, so this may just go a few weeks to a month if it happens at all. Plus, the seasonal has been wrong all year since March.
