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Windows to 1998



I was reading Toddo's Random Thoughts and saw the one with the IM to his college roommate regarding a potential market meltdown. That made me think some more about the timing for a more serious decline. Looking back again to 1998 can be instructive here.

Below is the current sector bell curve alongside the bell curve from April of 1998. As I've written before, the NYSE Bullish Percent indicator is above the 70% level for the first time since April of 1998.

What happened to the broad indices when this indicator reversed down in May of 1998? Not a whole lot, actually. It wasn't until the end of July that the market decline in 1998 really gathered steam. By September of 1998, as the Bullish Percent indicators found their lows, the sector bell curve looked like this.

As Toddo pointed out to his college roommate, no one really knows where the exact top or bottom is: "I think we're getting close to a market melt. don't know if it's here, up a few hundred points, a month out or whatever...".

Since we don't have a crystal ball, all we can do is use our judgment, and perhaps some risk indicators and measures, to choose wisely about how we want to be positioned based on what we perceive the risk to be at any given moment. Now, just looking at the sector bell curve risk measures above, where would you rather be buying stocks, and where would you rather be selling stocks?

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