Creeper rally continues

As an active portfolio manager, we employ a strategy of paring back positions when our technical indicators suggest risk is high and that the stock market may be due for a pullback. We began to see some initial signs of increased risk in mid-December as several of the investor and advisor sentiment polls began to show high levels of bullishness. By early January, as the markets continued to creep higher, we began to see other technical warning signs that suggested a high probability of a quick pullback. During that first week of January we took steps to protect our portfolios from a pullback and raised cash. As of today the markets have continued to creep higher. While it is frustrating to be sitting on cash as we watch the market trickle higher, we know it is best to remain disciplined to our strategy. Also, a look back on the the positions we sold in that first week of January finds that, as a whole, they are lower now. In other words, although market breadth has been strong, not every issue is participating in this creeper rally.

To put this current creeper rally into perspective, we must compare it historically to others like it. Jason Goepfert, from Sentiment Trader, reviewed the recent S&P 500 index momentum and here is what he found.

"The S&P 500 index has now gone 92 days without closing below its 50-day average, which has been matched only 17 other times since 1928. What's even more remarkable is that during this time, it has not even closed below its short-term 10-day average once during the past 30 days. That has never happened before, in 82 years of history."

So while it is safe to safe that we are due for a pullback, when it comes is anybody's guess. The charts are beginning to look eerily familiar to the charts of April 2010, and investors who didn't take some risk off the table then had to sit through a painful 15% correction.

(click on charts to enlarge)