Confusion

OK, here are the latest headlines from yesterday:

1. Consumers’ confidence plunged to a 5-year low on worries over rising inflation and fewer jobs

2. Prices of existing single family homes dropped 11% in January from the same month in 2007

3. Consumer expectations for the future were at a 34-year low

You’d think that with news like that, the markets would have been heading south in a big way, but no dice; the major indexes held remarkably steady and some even gained. If you find this confusing, you are not alone. It just shows you the value of trying to look at news events, or fundamentals for that matter, and arriving at a conclusion as to how the markets are supposed to react.

I quickly learned over 20 years ago, that I had absolutely no ability to take information such as the above and make a reliable forecast as to where we might be headed. This is why my focus is on trends, which I reduce to numbers I can measure and work with.

Reader G.H. had this to say about yesterday’s post:

“If you had eagerly initiated a short position at that time, you are not a happy camper at this moment.”

Yep, count me in this group. My SOPSX has not performed well. In my defense it was a decidedly small position and will not open much of a wound should I have to sell at a loss.

The reader is right about the war going on between what should be happening in the markets and what the powers that be are manipulating for the benefit of the markets.

I’m suspecting that we could soon see a buy signal triggered in domestic markets. And why not, just look at some of the about faces that have surfaced in the last few days. Mish has revealed that his advisory practice has “gone net long”!! And I read today in the Orlando Sentinel a column by an ordinarily bearish commentator that Orlando is poised to be in great shape for an economic recovery as everywhere South of Orlando falls into the abyss. Never mind that Orlando has 24 months of housing inventory on the market. It seems we’re now trying to talk our way out of a recession no one seems to think we ever entered.

There is no doubt that since I began following the TTI’s and the advice on this forum I’ve gained more and lost less than I would have done on my own. But I must say, given the recent mysteriously uncommon circumstances surrounding Bear Stearns among other things, if in fact a buy signal does occur, I’m afraid that I’m just going to sit this one out for awhile. I’ve mis-placed my dancing shoes.

As of yesterday, the domestic TTI has now crawled above its long-term trend line by a scant +0.29%. As I pointed out two days ago, not only do I want to see a clear break above the +1.50% level, I also like to see some staying power of several days above that number, before I am willing to commit to domestic equity funds/ETFs. We’re still several large rallies away from this target, nevertheless, I personally would not go as far as G.H. suggested and sidestep this potential trend change.

Why? I witnessed this very thing in 2003 when a well known large advisory firm, which shall remain nameless, overrode its own buy signal and remained on the sidelines as the new bull market unfolded. Talk about a professional with egg all over his face…

However, your personal comfort level and risk tolerance should always be your guide when it comes to your investment decisions. Right now, cash is king, so let’s revisit my entry point thoughts if and when we actually get to that moment of truth.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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