Overview of the Market Environment for ProActive Investors

Newsletter:  Step right up.  Take your pick and choose the reason why the markets are declining.  Could it be the electoral mess in Greece, the growing reality the Euro Zone may breakup, the deepening recession in Europe or the potential recession here in the U.S?  Maybe it is the ‘stupid actions’ inside JP Morgan or commodity prices sliding ever lower or perhaps it is something as innocent as “Sell in May and Go Away” So many choices, so little time before something bad happens.

Are these simply emotional headlines which scare the “little guys”?  Is the Fed waiting in the wings with QE3 to bail us out and save the day?

When evaluating the markets, we see the declining trend.  In fact, we see technical charts with topping patterns.  There is no way to know the markets have topped until after the fact.  The current decline has been more like a slow motion train wreck, not the usual rapid plunge.  There are a significant number of economic and Geo-political cross-currents pushing and pulling the markets.  However, few of the indicators we follow point to a sustained bull or bear move over the short term.  The markets remain range bound in a technically negative market environment.

Year to date, market volume has been anemic. Interestingly (at least to us) is the increase in volume the markets have been experiencing since the end of April. Such a strong sell off on increasing volume usually indicates some level of investor capitulation.  This often indicates a market bottom.   Time will tell if this is correct.  The markets are oversold and a rebound would not be unexpected.

If the markets do fall through the current level of support, the next decline could be much more impressive based on heavy selling.  Of course the Fed could throw massive amounts of liquidity at the declining markets.  Another dose of easy money could lift the markets just like it did the past several times it was initiated.  Caution: at some time this easy money will dry up.

Summing It Up:  Market risk remains high.  The overall market environment remains weak.  In spite of negative news the markets have held up as well as could be expected.  They remain in a trading range but they are knocking on ‘Support’ and a drop below this line would be ugly.  Remain conservatively invested.

Market Risk Environment

The Chart indicates when market risk is in our favor or when market risk is not in our favor over a 12-month period.

Market risk continues to increase. Without a change in this negative sentiment, risk will continue to increase and drive investors further away from the markets.  We are only holding onto several positions because the markets are oversold and may rebound.  At this point, the markets must move above ‘Support’ and recover.

The Signal Ribbons at the bottom of the Chart2 are green, indicating a Buy and red, indicating a Sell.

The Signal Ribbons Chart indicates 0 of our 10 technical indicators are positive.

Chart Key:

Market Risk Environment

Red Line = daily average of technical market risk environment indicators.
Green Line = 21 day moving average of technical market risk environment indicators.
Blue Line = 50 day moving average of technical market risk environment indicators.

Buy & Sell Signal Ribbons from 10 technical indicators.

Green Signal Ribbons indicate a positive market risk environment.
Red Signal Ribbons indicate a negative market risk environment.

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