Every now and then I like to look at the BIG picture (above) to gain insight into the overall trend of the stock market. As we can see, the RSI is headed down but has not dropped below 70 yet. The MACD is heading south too but it has not generated a sell signal either. Finally, the STO is also headed south but has not not clearly triggering a sell signal either. They are ALL displaying WARNING signs that a top MAY be in and that the long term trend is now DOWN. But these are only WARNING signs – not sell signals.
Conclusion: This chart looks way too ‘toppy’. We have switched to a defensive portfolio and we have raised enough cash to comfortably ride out a lousy couple of years or a bear market, or a crash. Better safe than sorry. We (a) sold all equities having little or no long term capital gains, (b) sold all bonds, preferring cash instead. (c) lightened up on some equity holdings that seem WAY overbought. We have a LARGE portfolio with a LOT of unrealized capital gains – so what this means in our particular instance is that we have gone from 100% long to 90% long – but if our portfolio was much smaller then we would be close to 100% cash as of February 1st.