The rally on Friday was based on the Fed will turn exceedingly "dovish" in a meeting next week. This could well wind up disappointing the markets.
Last week, we added equity exposure to our portfolios with the acquisition of some companies that we like the fundamentals of.However, we also swept a large portion of our trading cash into 1-3 month Treasury bills as the risk/reward for equities remains negative.
Even if you are exuberantly bullish, you should consider Mark Hulbert'sanalysis from this past week:
The Dow Theory is still flashing a "sell" signal. Before this indicator can turn bullish again, the rally that has taken the Dow Jones Industrial Average almost straight up since its Dec. 24 low must end.
That's why bullishly predisposed Dow Theorists should be hoping for a market pullback.
Though individual Dow Theorists disagree on the specifics of how to apply the Dow Theory in any particular situation, there is a broad consensus on what it takes to generate a buy signal:
1. Both the Dow Jones Industrial Average and the Dow Jones Transportation Average must undergo a "significant" rally after hitting new lows - "significant" both in terms of time and magnitude. This step has been satisfied by the market's rally from the Dec. 24 lows.
2. Both of these Dow averages must subsequently undergo a "significant" correction of the rally referred to in step #1, and in this correction either one or both of these Dow averages must hold above their previous lows (Dec. 24). We are waiting for this step.
3. Both averages must rise then rise above their highs registered at the top of the rally referred to in step #1.
One of the lesser-appreciated aspects of this three-step process is that, without a "significant" pullback (step #2), a buy signal will never occur.
This is why we concluded last week by stating:
"Overall, the weight of evidence suggests a retest of support at which time portfolios can be re-evaluated."