Rearview mirror analysis

In August of 2004 the market and my indicators were in the opposite situation they are today, but I was in a similar situation.  By point A below, the indicators were saying the second half of the year were looking good and it was time to plant the seeds.  Since these indicators are looking more at the longer term, you never know when they will actually kick in, but all I know is that they usually end up being correct. 

                                 Chart provided courtesy of www.decisionpoint.com

By point A I was getting more aggressive with my allocation.  I was getting confident that at point B we would see a break out to start a strong second half of the year.  But, as you can see, it turned out to be a head fake. 

The current market situation has brought back the memories of those six weeks of July and August 2004.  It was a tough time while I was trying to convince our readers that the the second half of the year will shine.  Things didn't look very good, particularly when the S&P 500 dipped below  the lows made that May (point C).  The talk was all doom and gloom.  It was difficult to find a bull anywhere.  The emails I received back then, who were in the market at my "recommendation", were not thank you notes.  Still I insisted that I was staying the course.  The indicators say the next big move will be up.  Well you can see above that point C did turn out to be the bottom and we had a very strong second half of 2004 when all was said and done. 

So here we are a year later and for two months I have been saying the market needs a rest and that a good pullback would set up the next leg up for the market later in the year.  Again the market gave me a little instant gratification moving from point A to B below, just after I went to 100% G fund.  But like last year the market is gave us another rally to humble the timing of the indicators.


                          Chart provided courtesy of www.decisionpoint.com
 
Like the new low made in 2004, a new high was made by the S&P 500 in July of this year and the sentiment surveys tell us that people pretty excited about the market right now.  I have not seen much of a change in the indicators to make me change my mind so I have to believe the pullback will come here sooner or later, hopefully sooner. 

The point is, everyone was very pessimistic at the bottom of 2004.  Things looked their worst.  But that was rearview mirror analysis.  My indicators are forward looking indicators.  They don't tell me what did happen, they tell me what is likely to happen in the next 3 to 6 months.  The herd is very optimistic.  Not unusual when you are near the top. 

That's all for today.  Currently 100% G fund.  Thanks for reading.