Blog Post On: 5/13/2009
The MTR-TM was down today -5.83%. Week over week it is down -6.82%.
No sell on the market was issued today by the MTR-TM. The MTR-TM takes its inspiration from the 4% Model which would have issued a sell on the market today. That model has also been prone to many false signals and whipsaws. The MTR-TM will not catch a new trend as soon as it starts. This helps avoiding whipsaws. This post covers the recent market action and where the MTR-EM and MTR-TM stands.
We posted back in mid April we had some apprehension regarding the market because many indicators were showing the trend would reverse so we tightened stops on our positions, but as we all know well the trend continued. Regardless in that post we recommended tightening up stops protect profits. We also closed out many positions not long after, but did so early and without an MTR signal or a 4% drop in the market, thus missing some of the gains.
The news that consumer spending was down was today should be no surprise. If you follow the economic model on this site you would see that wages are still under pressure (green line). We also posted last week with year over year employment being worse than before the 1950's that the consumer has a long way to go to recover. These factors all called for caution with this market.
Looking closer at the MTR-TM below, we still see that many indicators are diverging from price and this signals that a trend is slowing and will reverse. Also the Z-Score indicator reached a peak at +2. The Z-Score at times may not be enough to say a trend is slowing but reaching +2 fires a warning shot across the bow.
Looking at the MTR-TM below it is clear the MTR Indicator went negative today. This is not enough to issue a sell. Based on the indicator action buying puts would have been a good idea (as discussed) in this market, and it was a good idea a month ago but it would have ended in a loss. This is where risk management comes into play with buying puts to protect stock positions or keeping tight stops.
From a seasonal standpoint we are entering the "sell in May" phase of the market where the risks are greater to be long in the market.
Take another look at the chart above. Notice when the Z-Score reached +2 the market turned and the Z-Score dropped to -2 quickly. You will see that the Aroon indicator was still Green on Top which tells us the trend was still up. Buying at -2 would have been a good call. This may come again but all indicators will have to be examined.