Since mid-September, my posts have become increasingly bearish, I cast my first “Bearish” vote on the TickerSense poll the first week of November, I began suggesting you should start working on your “sell list” on Halloween, and yet, the HEDGEfolios Timing Indicator has maintained a bullish reading despite sliding towards a crossover. It left me feeling very disjointed and inconsistent at times because I don’t like to contradict the timing indicator. Finally, I can report that the timing indicator switched to a bearish bias this week. The now-ended bullish signal was given on July 10, 2006 and generated a 10.65% return on the S&P 500 during those 5 months. Hopefully, your portfolios did as well or better.

I am not calling a victory here as I am much too humble to pretend that I am smarter than the market. There is a lot of risk right now to being wrong (in both directions.) This market has been amazingly strong and each pullback in recent memory has been small and been bought. There is a strong risk to that happening again so be careful about trying to short at these levels. There are many reasons why investors and portfolio managers want to ride out the rest of this year and I don’t want anyone to disregard that influence. On the other hand, I would be more inclined to sell individual stocks when the time is right and park the proceeds in a money market account. I keep providing reiterations of UP signals that I think are still going to head higher despite my negative tone, but those “short lists” are getting shorter and shorter. Putting new money to work at this time is very difficult.

This week’s signals were tougher than usual and I was not very “thankful” about this Thanksgiving’s extra challenge. The light volume was not helpful for trying to read charts to say the least. I left a lot of UP signals on the chopping block - kinda like the President pardoning the national turkey. Unfortunately, based upon what happened yesterday, I wish I had been more aggressive. Regardless, this week I gave about 10 DOWN signals for every 1 UP signal and that is an extreme ratio. Oh well, like I said earlier, we might get a bounce here and in some ways, I will be happy for it. You can count on me taking higher prices as a nice opportunity to make up for missing a bunch of DOWN signals this week. Unless something tells me otherwise, I expect to sell the rallies and I don’t think I will be alone.

For all the VIX lovers out there - did the sub-10 reading cause you to get out before yesterday? Are you going to look at the higher VIX and decide that it’s still time to get out? I doubt it. What level would it have to spike to before we will start hearing how it’s so high that we have to buy? Historically, the upper limit was about 50 but since the VIX methodology was changed in 2003, the bands have changed. Now it appears that it is 10 (lower band) and 20 (say 18-20 on the upper band). As I wrote last week, this indicator is dangerous and there are so many other things to follow for longer term market moves.

I have heard that investors are just taking profits and I think that is permabullshit ( a related post is on its way on this topic ). Something else is at work. There has been an absence of buying for weeks and it’s finally being obvious to people who have been too busy falling in love with higher prices.