04-17-2021: When will the next shoe drop?
Updated: Jan 26
What a great week... actually, what a great Thursday/Friday. I have to tell you that it is a LOT more fun to see the holdings moving from lower left to upper right than not.
The data are about as bullish as they can get... except for one, tiny fly in the ointment... more on this in a bit.
Looking at the above result-set and chart of the Turner Capital Total Market Index, above, it is difficult to not be 1,000% bullish. And, as a matter of fact, we are fully invested in all but the DIS model, which focuses on capturing dividends and runs on a totally different track than the 3 growth models: TQA, LI and TG.
But... (you were wondering about the "but", weren't you?)... Nothing goes straight up forever and you never know when the next 'shoe' (whatever it might be) will drop and spit right in the eye of this beautiful bull market.
Now, I know some of you (and you know who you are), want me to capture all of this recent profit before we encounter the next down-turn whipsaw or worse. And, I know some of you will not be the least bit reticent to point out that we should have totally gone to cash yesterday, if the next shoe to drop occurs on Monday. But, no one knows when the next shoe to drop will actually occur. It 'could' be Monday... or a week later... or a month later... or 5 years later.
No... the right course of action right now is to stay the course... AND... keep raising stops every day, if not more often. And, that is exactly what we are doing. Yes, this market will reverse course and when it does, stops will be triggered.
Will hitting stops cause us to lose a small percentage of our recent gains? Yes, of course. Then, why not sell right now at this market top? How do you know that Friday was the top? Maybe this market will move up another 10% or 20% or more. Remember... and this is a mathematical fact... the current trend in the market will continue exactly until (let's all say it together)... "it doesn't".
And, how will we know when that "doesn't" event HAS occurred? We will know it when the trend of the market moves from a bullish trend to a bearish trend. Right now, we have two "warning triggers" that I am watching to give us an "early warning".
If the above chart of the total market moves down to its 10-week moving average trendline. The second is when it moves down to the 20-week moving average trendline. But... long before those two early warning events occur, most of our stops will have fired and we will be in cash. This market has shown a propensity of bouncing off of the 10-week sma and moving on to new highs, so if the market does drop down to the 10-week sma, it will NOT be the time to invoke a bear market strategy. We will likely move a lot more into cash, but will still be looking for other signs to tell us if a drop to the 10-week sma is just a garden-variety whipsaw or the start of the next swoon into bear market territory.
This brings me to the proverbial, "Fly in the Ointment" that I alluded to you above.
We have some new algorithmic quantitative software models that are telling us that phase one of a three-phase process that defines a change in trend from bull-trending to bear-trending, is now in play and has been for over a week. If the algos tell us that we have moved from phase-one to phase-two, we will start capturing profits where possible. Moving into phase-three is a solid "move-to-cash" event, immediately.
But, we are only in phase-one and history tells us phase-one could last for another few weeks and either go away, entirely, or drop into a phase-two condition.
Suffice it to say that now is NOT the time to wholesale move to cash unless you just want to based on a guess. I do not guess. I measure and evaluate. Right now, far more data support staying long and strong. But, a phase-two condition could occur at any time and if it does, you will see us moving far more aggressively to cash.