It’s complicated

♫  “You’d think that people would have had enough of silly love songs, but I look around me and I see it isn’t so.” ♫   I just love that song. Whenever I hear Paul McCartney & Wings’ “Silly Love Songs” on the radio, as I did this afternoon, it takes me right back to my childhood — the mid-70s, before adolescence. It was such a carefree time when life, for me, was so uncomplicated.

The current stock market environment has me yearning for those simpler times when things were either black or white. Case in point: according to my analysis the S&P 500 is in a bull market, yet I moved to the sidelines on April 19. It’s not black or white, but gray.

BLOG 5-02-2013

(click to enlarge)

Here’s what concerns me: the S&P 500 has stalled at its 2000 and 2007 peaks. (The S&P actually surpassed its 2007 high on March 28, but not in a statistically significant way.) Triple top failures have long been associated with waterfall market declines. I would like to see the S&P 500 close above – and stay above – 1,600 before I recommit to US equities. Currently the S&P 500 is sitting at 1,598. (I discussed this bull market threat in my April 4 interview with MarketWatch columnist Chuck Jaffe. You can listen to our conversation here.)

I’m also seeing deteriorating internal breadth in a market that has just entered a seasonally weak period. Having said all this, we’ve got a Federal Reserve backstopping the economy to the tune of $85 billion a month. At this point the S&P 500 is up 2.7% since I headed for the exit door. When the dust settles, I may be proven wrong to be so cautious — I’m okay with that. I just don’t feel that the upside potential is worth the downside risk.

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Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blog.

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