Today was certainly about as far away as what I had anticipated that it was actually the complete opposite of what the models dictated. However, given some of the characteristics of the decline today, it remains very difficult for me on a technical basis to march into the bearish camp and surrender.
The volume on the decline today was hardly what most supposed bear markets would put out on a decline of this magnitude. The sentiment both on a short term and intermediate term remains very bearish, which is a very strong bullish vote in our corner. The most recent polls amongst all of the monitoring services show a large degree of disparity among the ranks of investors. The levels that these ratios are achieving are the same if not worse than the 2003 low in the market. These levels are not bear market levels and are indicative of a market that is in the process of putting in a major low.
As you know, I have subscribed to the notion that the 1270 low on the S&P 500 was the ultimate low for this recent move lower and that it should stand up to any test we may encounter. Nothing so far has changed that outlook. If we have entered a period of the market making a test of these lows, which we knew would come at some time, then the action we saw today is encouraging for our outlook. The key to this entire re-test will be the amount of volume we will see and today was right along the lines of what you can expect on the volume front.
So, in a nutshell, the market may be in the process of a re-test of the lows, but with the vast amount of negative sentiment currently in the market place we should look at any pull back in stock prices as an opportunity and not a curse. The always present bottom test was exactly why I did not go full throttle with the allocation to equities and currently we remain with our cautious 50% to 60% allocation towards equities. As I have stated in the past this allocation will increase as the technical work dictates.
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