The one thing that makes the HEDGEfolios Timing Indicator different than most of the market breadth indicators is the element of time that I have programmed into the formula. This week, despite giving 90 new DOWN signals versus 80 new UPs, the passage of time moved me extremely close to bullish territory - a bias that my personal view does not share. I’ve been in this situation several times during the three years since I built the indicator and I’ve learned to trust what it tells me. However, I want to make it clear that until more than 50% of the stocks I cover have UP signals, there is no confirmation of a bullish market reading. At least not in my world.

Historically, a confirmed change in the HEDGEfolios Timing Indicator precedes a move in the market from weeks to months. The last time was April 30th and it took about 10 weeks to finally show up with a decline in the market. I was also wrong from mid-December 2006 until the end of February and it got pretty painful during January. The main lesson for me (other than getting good at being wrong!) is that I just have to trust what the data is telling me regardless of what the famous indices are doing. As I have repeated here and whenever I am asked anywhere else - it is important to buy and sell individual stocks based upon the stock and not the market. I never advocate making wholesale changes to portfolios based upon an indicator or change in the index. However, the market bias should change your willingness to enter or exit positions.

For example, since the end of April I gave DOWN signals on any sign of meaningful weakness in individual stocks and when the decline finally appeared to the market, most of my positioning was already done. However, now as the HEDGEfolios indicators moves toward bullish territory, I am more willing to give a strengthening stock the benefit of the doubt and change the signal to UP. In the past 4 weeks, I have been giving more new UPs than DOWNs. Inevitably, I am early on a bunch of these and I don’t doubt that it may take some time before this decline has bottomed. Based upon past experience, it could be weeks or months. I don’t believe a bottom found us last week but I am certainly becoming less bearish thanks to the 4th dimension.