Navigator Algorithms – 100% Cash
Just a day or so after two of the most reliable fear gauges had warned of investor complacency, the Tech Monsters got quite the spanking yesterday. The NASDAQ 100 erased six days of gain in a single session, and the S&P 500 did not fare much better. With their capitalization weightings, the Tech Monsters disproportionately walloped the major market indices in the same way they carried the market off the March bottom. We enjoyed watching from the sidelines, but now we need to find the bottom and redeploy our cash.
The broader market fared better, with Bank and Energy stocks eeking out small gains. This indicates that rotation from “stay at home” to “real economy” stocks is alive and well. Rotation will cradle the downdraft for now. As long as it does, I am not expecting a full-blown meltdown. It is conceivable that the new crop of retail amateurs could panic at some point, and that could make matters worse. For now, let’s take it a day at a time.
My initial target is the mean – the 21-day Exponential Moving Average – on both the NASDAQ 100 and the S&P 500 Indices. Lets see how the market handles that rest stop on these indices to make a further forecast.
The core of the Navigator™ Algorithms is a mathematical analysis of the dance around the mean, folding in a variety of components that coincide when the market is stretched too far, ready to snap back like a rubber band. Market sentiment, as measured by the fear gauges mentioned above and others, is an important component of the algorithms, though weighted less than many others. As I have learned over the years, investors can stay giddy much longer than I can last trying to short the market.
Keep in mind that stimulus looms in the background – which could punish a short position faster than your fingers can reach the keyboard. The market will welcome another $1 trillion dollars injected into the economy with open arms. Heaven only knows the price we will eventually pay for all this debt, but that is a discussion for another day.
For now, stay on alert for a buy signal.