Cyclical Exposure Risk Has Diminished, but There's a Longer Term Technical Caveat
Investors should be aware of the fact that the markets may soon be pushing against the top of the secular consolidation resistance of the last decade-plus.
Since last week’s break north, my firm's CTI (Cyclical Trend Index) has once again returned to bullish, indicating cyclical exposure risk has diminished. (The CTI is a purely technical index which not only determines trend, but its associated risk.) This shift in stance has given us confidence to remove all hedging strategies and increase our long exposure. That’s the good news... "Maybe.” With that said, investors should realize another longer-term, technical caveat.
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In evaluating the monthly (15-year) chart of the market, investors should be aware of the fact that the markets may soon be pushing against the top of the secular consolidation resistance ("SCR") of the last decade-plus (~ 1,500-1,560). Since the publication of my firm's 100 Year Market Theory (100 YMT) in 2003 we have been pontificating that the US equity markets are, and will continue to be, in a secular channel correlated in time to the last secular bull market; 16-18 years (1982-2000). Over the last few years, since the 2009 bottom – the largest cyclical bear market in history – we have also stated this bottom marked the mid-point of the larger secular channel. That’s the bad news... “Maybe.”
When analyzing trends within trends – secular to cyclical – it’s only important, for now, to focus on the cyclical, as that is where ‘stance’ is determined until risk shows its ugly head again. It is only when the cyclical stance shifts that technicians should turn to the greater secular trend. For now the rain has stopped, the clouds have begun to dissipate, the fog has lifted, and Wall Street cowboys are ‘Back in the Saddle Again.’
We hope this helps and finds you well.
Editor's Note: Read more at Tesseract Asset Management.
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