If stocks continue to rally they won’t have to move much higher to trigger a signal for my Adaptive Growth strategy. This is a strategy that uses a timing base mechanism to determine whether the strategy should own stocks or cash.
Here is a picture of the current state of the trigger.
If he black line moves above the blue line it is usually a good indication stocks are about to resume a long-term uptrend. There is always a chance during a transition period (where lines have recently crossed) the indicator will reverse course after crossing . We saw that happen back in the fall. The first dip below the blue line was based on the mid-summer selloff. The August Flash-Crash sent the black line much lower but stocks quickly recovered for a short time only to fall below it again at the end of 2015. Aside from the reverses that can happen around an initial trigger this has been a very reliable indicator for both avoiding sustained declines and staying invested during more mild corrections.
Here is what the indicator looked like back in 2007-08.
I have to apply a bit of discernment when a trigger arrives. Currently this recovery rally is not all that convincing so I am willing to be a little patient if the black line does move above the blue line in the near future. Even getting back into the market a couple points past where the lines cross I should be able to enter below the highs back in mid-2015 if the current uptrend continues its course.
