I've been quiet on my blog for a good week or so now, just watching the markets. I don't feel the need to post every day if the action doesn't warrant extended commentary. To be quite honest, I've been preparing to write a big "Repent Bulls, for the end is nigh" post… but it's not time for that yet. Not to say that we're not getting closer. There's been a couple fast moving signals that have caught my attention – most notably the McClellan oscillators for a number of the sectors and indexes have shown sell signals. I put a lot of confidence in sector and market breadth indicators, which the McClellan oscillator certainly is. The thing is, Mr. McClellan can say "SELL" when the result is just that the market goes sideways for a while and then explodes up again. I think you have to balance that out against the direction of the overall market's bullish percents – "see the forest for the trees."
Currently, the overall market bullish percents are continuing upward. More and more stocks are being overcome by buying pressure outvoting sellers. That's a situation that can actually last for an extended period of time, and can be a frustrating one to fight. Doubly frustrating if you're trying to call a top. Reference this next chart, showing the relative S&P 500 bullish percentage compared to the underlying index's performance. As you can see, the bullish percent remained "on offense" (that is, above about 30% and increasing – or anything above about 70%) for about a year with only one defensive period at the beginning of 2010. That whole time, the S&P 500 moved up strongly.
Don't you think you would have liked to stay invested the whole time that bullish percent was "on offense"? Me too.
So, for the time being I remain fully invested. I'm watching closely to see whether more breadth indicators will tumble, and especially how the bullish percents will fare.
My investment portfolio has rotated a bit, so if you haven't checked on my pick's performance lately give it a look.
David Kern (@AbjectAvarice on Twitter)
