The consolidation, congestion in the S&P 500 Index led to the increase in the TC Index this week as the major markets finally took a breather from the torrid upward pace they've been exuding for nearly 10 weeks now. However, our Primary Trend remains firmly entrenched in Bullish Mode. Mr. Greenspan gave his "shot across the bow" warning on Wednesday that the Chinese stock market was due for a dramatic decline imminently. US stock investors took this warning as meaning that there would be a contagion effect like that of February 27/07 heard round the world's stock markets. Thus, what was turning into another strong up day gave way to significant selling pressure Wednesday afternoon and into Thursday's session. Finally, the markets recovered lost ground on Friday as the "buy on the dip" mentality continues all to well in this momentum driven market. I am growing somewhat more bearish as the yield on the US 30 year Bond continues its recent ascent, finishing Friday a tad over 5%. In addition, there is growing complacency in the markets, as fear has receded markedly over the past 2 months and has been replaced with the firm conviction on the part of most investors that a buy and hold strategy will win out over the long term. We shall see. It was this same brashness that propelled the equity markets to insane levels through the 1990's and into the year 2000. Although I don't think we are at an imminent top in the market, the seeds are being sown for a stiffer correction that will entice the bulls to buy the market on the first pullback, only to see the market shift lower still. Why then are we still long the market you might ask? The simple answer is that we don't seem to be at the top just yet. There continues to be amble liquidity driving the market higher and the last thing we want to do is fight such a strong tape. As long as the bond market settles down, which will mean a commensurate continued moderation in inflation, it looks like the bulls will continue to hold the upper hand. For now at least. But as Charles Dow said "the economy and the stock market feel the strongest at the top". I believe the US economy is in the process of strengthening and is somewhat off from when it will feel very strong. Thus, our algorithms are telling us to remain fully engaged to the upside, that is until the inevitable downturn engulfs the markets once more. At which time, our computers will signal to sell the market. Until then enjoy the ride higher.
