When the indicator bounced off a low at point E and began to trend upwards, I believed that the probability of the aforementioned top and a start of a bear market was low. The significant decline this week has me worried. If the indicator falls below the red line in the weeks ahead, there are two ways to interpret this signal: (1) that the market is vulnerable on or abouts September 30 to a bear market, or (2) that a peak will be deferred to the fall of 2016 at point F. Given the short span of time between points E and F and the fact that the indicator failed to break the peak at point D, I have to place my bet on my first interpretation -- that a bear market could be around the corner.
In regard to my last post in which I shared my plan to buy into this market if it traded down to 1867 or penetrated 1990 to the upside, I did "take some of the bait, but didn't swallow the hook." Specially, I increased my equity position by only 5% because I couldn't find anything to buy that met my criteria.
Given what I know now about my macro indicator, I believe that it's prudent not to add to my equity position. In my next post that I plan to publish before Wednesday, I will discuss the bear market scenario, and a plan for what I would do to mitigate risks of a decline.
