The model score today is -33.  This is only a slight improvement compared to yesterday, despite the strong rally.  This means that the market is still weak internally.  This quite predictable rally has corrected the deeply oversold conditions, rallies now even to 2800 would probably have very little effect on the spreads and the model score.  All we have done is corrected the enormous gap between spot spreads and the moving averages and will now test them from underneath. If that test fails, we will be in a very precarious position.

 

Unless the market now stabilizes at higher levels, the asset spreads utilized in the model suggest this will be a temporary reprieve, with much worse to come eventually.

 

Owners of SJM & TIF 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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