With our fundamental equity market model on a sell signal, our target equity allocation remains at 50%.

Our fundamental equity market trading model is on a sell signal, yet the technicals remain constructive. In essence, we are NEUTRAL on equities. There is no edge, and we have reduced our target equity allocation to 50%. By our methods/ models, the markets have a 50/50 chance of going up or down, and the upside is very limited. So for those investors who don’t want to go all in or all out of the markets or who don’t want to treat their portfolios like some light switch that goes on and off, we have this 50% or NEUTRALallocation. Got it?

There are 4 basic modes or market environments that I define. There is bullish, bearish, neutral and speculative. Currently, we are in a NEUTRAL market environment. As the graphic below states: the equity market model is on a sell signal as the price cycle is rolling over and the technicals (i.e., price > 40 week moving average) are constructive. This kind of market environment occurs about 30% of the time over the past 20 years.

Figure 1. Target Equity Allocation/ bullish