OTM Market Update Saturday October 25

Despite the market uptick in the last few days, the asset allocation model (http://onthemarkinvesting.com/otm-asset-allocation/) still strongly  favors bonds over stocks.  It is predetermined to err on the side of protecting assets against substantial market drops.  You can expect it to slowly rationalize to a new steady state value as the weeks go by. This rebound in the market is not completely convincing, yet.  Technically the pierced long term trend lines have not been collectively passed on the upside for at least 3 days or by 3%.  The model itself continues to register “BUY” in the long term, but not yet in the intermediate or short term.  As a longer term investor, you may need to see some stability and direction in the market before you put many of your cards back on the table.  Or at least a “BUY” signal in the intermediate term S&P. Another point of reference is the Russell 2000.  The index has still not recovered (see below) from the most recent drop, and still does not register BUY on either the intermediate term or long term.  Remember that the Russell typically leads the S&P.  It is leading it up in the short term, but the strength does not appear yet to rebound back to previous levels. It is a fact that long term bonds are still favored by the market and by the technical model (see below).  This despite poor bond returns, fear of eventual inflation, and a VIX (fear index) gauge that at 16 is now back below the historical average of 20.   Between earnings season, general elections, and Ebola we have enough triggers to move the market around.  This is a time of short term “static” and financial news chatter.  If you are a longer term investor, stay away  from the headlines and watch the numbers.  Make sure your assets are allocated between the asset classes (stocks, bonds, real estate, …) in a way that you are comfortable with.  If this is a “traditional” 4Q then stocks will be strong, the trends will continue past broken lines, and we will resume the bull market.  But until then, stay alert.

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