Emotion is a funny thing.  You know it isn't good in trading.  Apparently, it isn't good for politicians either.

via YouTube.

Tom Bowley posted some analysis that caught my attention.  He used sector rotation analysis to question the sustainability of the current market rally.

Basically, the chart below shows red shaded areas to highlight warning signs that appeared at the end of the prior bull market in 2007 and also warned of the 2011 correction.  

Currently, the S&P 500 is in the midst of a very solid rally off the February 11th bottom.  The rally in February was supported by rotation to "risk on" areas of the market.  

The March rally, however, has lost its luster in terms of relative ratios as money has turned more cautious.  

It doesn't mean we can't go higher, but it perhaps lowers the odds a little.  

Take a look at the chart:

 

Tom Bowley via StockCharts.

 

The strongest S&P 500 rallies have occurred during those green shaded areas when money has rotated to aggressive areas.  

 

When the S&P 500 rallies and those relative ratios drop, it tends to mark significant market tops.

Tom Bowley posted some analysis that caught my attention.  He used sector rotation analysis to question the sustainability of the current market rally.

Basically, the chart below shows red shaded areas to highlight warning signs that appeared at the end of the prior bull market in 2007 and also warned of the 2011 correction.  

Currently, the S&P 500 is in the midst of a very solid rally off the February 11th bottom.  The rally in February was supported by rotation to "risk on" areas of the market.  

The March rally, however, has lost its luster in terms of relative ratios as money has turned more cautious.  

It doesn't mean we can't go higher, but it perhaps lowers the odds a little.  

Take a look at the chart:

 

Tom Bowley via StockCharts.

 

The strongest S&P 500 rallies have occurred during those green shaded areas when money has rotated to aggressive areas.  

 

When the S&P 500 rallies and those relative ratios drop, it tends to mark significant market tops.

The best way to make dreams come true is to wake up.

Here are some of the posts that caught my eye. Hope you find something interesting.

Lighter Links:

• How Elon Musk Taught Himself Rocket Science. (Time)
• How (and Why) SpaceX Will Colonize Mars. (Wait But Why)
• The 13 Principles of Disagreement. (LeadershipFreak)
• 16 Startup Metrics | Andreessen Horowitz. (A16z)
• 16 More Startup Metrics | Andreessen Horowitz. (A16z)

Trading Links:

• Immigrants Founded 51% of U.S. Billion-Dollar Startups. (WSJ)
• A New Stop Loss: Slot Machines That Tell Gamblers When to Give Up. (AP)
• The Problem with Average. (The Irrelevant Investor)
• Hedge Fund Closures Return to Crisis Highs. (FT)
• This is 'No Longer an Investment Market but a Battlefield'. (Hedge Fund Manager)

The best way to make dreams come true is to wake up.

Here are some of the posts that caught my eye. Hope you find something interesting.

Lighter Links:

• How Elon Musk Taught Himself Rocket Science. (Time)
• How (and Why) SpaceX Will Colonize Mars. (Wait But Why)
• The 13 Principles of Disagreement. (LeadershipFreak)
• 16 Startup Metrics | Andreessen Horowitz. (A16z)
• 16 More Startup Metrics | Andreessen Horowitz. (A16z)

Trading Links:

• Immigrants Founded 51% of U.S. Billion-Dollar Startups. (WSJ)
• A New Stop Loss: Slot Machines That Tell Gamblers When to Give Up. (AP)
• The Problem with Average. (The Irrelevant Investor)
• Hedge Fund Closures Return to Crisis Highs. (FT)
• This is 'No Longer an Investment Market but a Battlefield'. (Hedge Fund Manager)

This week, Lance Roberts posted "Only 4% From Record Highs" on RealInvestmentAdvice.com.

In it, he stated:

“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:

1. 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.
2. Negative trends are still in place which suggests the current rally, while significant, remains within the context of a reflexive rally.
3. Volume is declining on the rally suggesting a lack of conviction.
4. 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

 

Happy Spring!