The model score today is -77, the worst score since the correction started.  This means that the market is collapsing internally.  The quite predictable rally has corrected the deeply oversold conditions and as soon as that happened, the market was met by a wall of selling.  All we have done is corrected the enormous gap between spot spreads and the moving averages and tested them from underneath. That test failed.

 

Unless the market now stabilizes at higher levels, the asset spreads utilized in the model suggest there will not be much of a temporary reprieve AND much worse to come eventually. Do not forget that this is a long term model and can remain in risk off for years, if the spreads it is based on warrant it. You cannot use it for day-to-day trading. It gives you the overall main trend, not the next 20 ticks.

 

Owners of AFL, SNPS, BA, PWR, DOV, KMI, SNA & TMK should examine whether it is worth holding these stocks, as the position is rapidly deteriorating in those names.

 

Our asset allocation is today still 100% TLT and 0% SPY.  The monthly model gave us the sell signal at October month end.  All 3 models are now aligned in risk off.  The fact that the model keeps on being negative into price rallies is a potent tell of what might be ahead.  I would still advise extreme caution and lightening up of individual names which are under-performing the market into rallies.

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