Market Wrap – week ending 2/7/2014

Amazingly the week closed with a slight gain on all the indexes.  If you watch the markets during the week, I’m sure you will join in my amazement.  We started the week with a nasty decline of 2% to 2.5%, then dropped a bit further on Tuesday and Wednesday, yet yesterday and today the market had aggressive moves up which ultimately completely reversed the entire week’s decline.  It was amazing to watch.  The markets are still down 2 – 5% from their highs set in December, but regained roughly 3% in the past two days.

Is it time to celebrate and let the bullish trend continue … I’m not so sure.  This type of aggressive bouncing around is not a healthy environment and until we see the daily price swings calm down, caution is still very much warranted.  Markets don’t just fall straight when a correction occurs, they decline, then rise a bit, then fall again, ebb and flow.  So … the market has recouped roughly half of its’ decline, with half still to recover. 

Looking over history, most corrections drop the market 8% and we dropped roughly 7% in the past few weeks, so technically we could be done, but with the aggressive down and up moves this past week, I’m not so sure.  In fact, today looked like nothing more than a short squeeze (Google this term if you have an interest in learning more about the markets).  This could be shaping up for the “kiss goodbye” that I referenced last week. 

Technically speaking, we have some heavy resistance above us.  Last week I mentioned that the major indexes all looked ‘broken’ with only the Nasdaq looking ‘better than the rest’.  Not much has changed with this picture.  We have fallen below the 17, 20 and 50 day moving averages and they are all converging together creating a tough barrier.  If we are to continue this upward trend, we will need to bounce above those with some conviction early next week.  This is a normal resistance point when markets try to right themselves after declining aggressively, and most times they fail the first few attempts.

Not surprisingly, all three of our models are in cash, with our longer term model finally going out of the market at the close yesterday.  As you know, our ‘The One’ moved to cash roughly 3 weeks ago, our medium term went to cash last week, and finally our longer term exited yesterday.  To me, this is very telling that all three are signaling to be out of the market.  In fact, our longer term strategy has been in the market for over 7 months, so the fact that this signaled an exit certainly tells me that we have a potential game changer going on here.  Does this indicate an impending larger decline?  Absolutely not, but it certainly shows that caution is warranted at this juncture.  Time will tell if the buying continues and we move up from here or decline further.

Regardless of the outcome, we will continue to monitor and act accordingly protecting your hard earned investing dollars …

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC