Whipsaw signals

After seeing some constructive signs of a fledgling rally less than two weeks ago, I stepped back into the market, investing up to 50% of capital while waiting for the rally to prove itself. After seeing 5-10% gains in many of our stocks over the next few days, it appeared that the rally had a chance to break out and run higher. However the rally came under pressure Thu and Fri and the timing model then threw a SELL signal at the market close on Friday.

This "whipsaw" signal action is evidence that the bulls and bears (buyers and sellers) are still fighting it out. Fortunately, my managed accounts will survive the whipsaw with a small loss of less than 1%, and we are now positioned well, should the market decline further.

We should be prepared for more whipsaw signals until the market finally breaks out of this trading range for an extended run, either up or down. It's OK to be wrong as long as we don't take any big hits to our capital base. The timing model ensures we will be on the right side of any EXTENDED moves, either UP or DOWN.

Personally, I believe the banking problems in Europe are MORE serious than the financial crisis of 2008, and we should be prepared for the markets to go much lower before putting in a final bottom. Although the current problems are widely known this time around, there is less capacity for the European governments to bail out their banks than in 2008, because the sovereign governments have already borrowed so heavily. The politics in Europe are also less conducive to a large scale bailout than in the US two years ago. We can expect continued volatility while this gets worked out.