Tuttle Tactical Management, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Tuttle ...
The continuing mess in Cyprus and the S&P 500 nearing a record close dominated the news this week. As I said last week, Cyprus is insignificant, the only important aspects of what is going on is timing. If the crisis hit the news during a time when the market was oversold and due for a rally then it would have little, if any, impact. The fact that that market has rallied this year without much of a selloff gives traders an excuse to use something like this to take profits.
The S&P 500 nearing a record close is more interesting. While the Dow Jones Industrial Average (DJIA) tends to generate the most individual investor interest (typically when an investor asks what the market is doing it is in the terms of the DJIA), institutional investors watch the S&P 500. Markets are not efficient or random because human beings trade in markets and human beings are far from efficient or random. Because of this, certain market levels become psychologically important, none more important than an all time market high. This creates levels of support and resistance that markets struggle to break through. An all time high on the S&P 500 is very significant resistance so it would be normal for the market to test this level a number of times before breaking through and moving on. This explains why yesterday’s rally fell short of an all time high and why, as of this writing, markets are looking at a down opening.
Our momentum indicators are still extremely bullish on the stock market. Our positive reading on stocks does not mean that the market is guaranteed to rise from here. There are still many risks on the horizon (Poor corporate earnings, problems in Europe, slowing economy, partisan bickering in Washington, etc) that could cause a selloff. However, our research suggests that when our momentum indicators are bullish the rewards of being invested outweigh the risks.
In the US we are still heavily weighted towards small cap stocks as they are showing the strongest momentum.. Globally, we continue to favor the US over international stocks. Shorter term the market is looking slightly overbought.