The model score today is –15, which is no material difference to yesterday, despite the rally. This means that the market is still deteriorating internally, despite price. The market is digesting its losses and awaiting earnings. Most people have done their hedging and if the market is going to rotate higher, it will do it soon. Unless that happens, the market is in serious trouble.
Yesterday we had a situation which has not occurred before: the Counter-trend models were due to be stopped out at the close because we reached the -3% stop; however, the third Counter-trend model gave a simultaneous buy. This model exits the market after 3 days, so it is very short term. Whatever happens, we will be in risk off on Monday 29th October at the close.
Owners of LLL, ED, SRE, OMC & HSY should examine whether it is worth holding these stocks, as the position is rapidly deteriorating in those names.
Our asset allocation is unchanged today, but we will definitely make use of any rally to reduce equity allocations and increase cash on Monday 29th as described above.