Are We OK?

About a week ago, our indicators told us "supply" was now in
control of the market.

What happens to prices when there is not enough "demand" and too
much "supply" of something?

Prices must fall.  So we should focus on protecting our money.

Moving to defense doesn't mean that the market will go straight
down.  It IS possible to make money in this market, but we're
facing a strong headwind.

This indicator doesn't tell us how high the market will go — or
how far the market will drop.  It tells us the risk level. 
And it's telling us the risk in the market now is higher than it
has been in the last eight months.

As one of my clients wrote in an e-mail, "I guess it's better to
play it safe, then to lose big."

Couldn't have said it better myself.

After a big week down, we usually get a "reflex rally," which is
what we've seen the last few days.

The indicator moved to defense in April 1987 — four months before
anyone started to realize there might be a problem.  It also moved
to defense in June 2001, well before 9/11.  Investors who followed
these signals had a large amount of money on the sidelines, before
trouble began. 

The indicator has also gotten us out of the market other
times too.  Twice in 2004, the indicators went to defense, and the
market went nowhere during that time.  But we didn't lose money by
becoming defensive during those times.  We just happened to be on
the sidelines while the market did nothing.  I'll mention more
about this in my next message.

Tom

Thomas Mullooly
Mullooly Asset Management LLC
Our Only Business Is Fee-Only Investment Advice
www.mullooly.net
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