This week, Lance Roberts posted "Only 4% From Record Highs" on RealInvestmentAdvice.com.
“While my “emotions” are currently screaming to start increasing equity allocations at this juncture, there are several reasons why my discipline is keeping me from doing so currently:
- The market is GROSSLY overbought in the short-term and will have either a mild corrective process or consolidation to allow for an increase in equity exposure.
- Negative trends are still in place which suggests the current rally, while significant, remains within the context of a reflexive rally.
- Volume is declining on the rally suggesting a lack of conviction.
- This rally looks very similar to the rally last October except the fundamentals are substantially weaker.”
Here is the chart (with his notations) that caught my eye.
The question it poses is whether enough “technical repair” has been completed to warrant an increase in equity exposure in portfolios? Does the “risk” that the current “bear market” rally is nearer completion outweigh the possibility currently the markets are changing back to a “bull market”?
In other words, does the “risk” that the current “bear market” rally is nearer completion outweigh the possibility currently the markets are changing back to a “bull market”?
As we approach summer, the seasonal weakness of the markets will likely resurface as the reality of Central Bank interventions are digested and focus once again returns to the real driver of asset prices longer term – profits.
“There have been three great inventions since the beginning of time: fire, the wheel, and Central Banking.” – Will Rogers