At the end of January, I discussed the potential for a reflexive rally in the markets and laid out three retracement levels at that time.

“The good news, if you want to call it that, is that the market is currently holding above the recent lows as short-term oversold conditions once again approach. It is critically important that the market holds above that support, which is also the neckline of the current “head and shoulders” formation, as a break would lead to a more substantive decline.”

Here is the same chart updated through Friday’s close:

I pointed out last week that:

“The good news is that the market was able to break above 1940, and the 50-dma, which now clears the way for a push to the 1970-1990 where the next levels of resistance will be found.“

The markets were not only able to push into the 1970-1990 level last week but also complete a 50% retracement from the recent lows as shown above.  The 8% advance from the closing lows just 4-weeks ago has sent “shorts” scrambling to cover pushing stock prices sharply higher.

But does this change any of the recent analysis?

I’M MISSING IT

“OMG!!! I am missing it. Don’t we need to be jumping back in?”

It is not surprising that the recent surge in the markets has awakened the “bullish spirits.” However, that is an emotionally based response to short-term market volatility rather than a decision to increase equity risk based on a defined and disciplined approach.

This goes to the heart of the portfolio management discipline and philosophy. The chart below shows the model allocation changes since 2013.

As you will note, portfolios have been grossly underweight equity related exposure since April of 2015 creating a positive performance gap between the index and the portfolio. That positive performance gap allows for a more relaxed approached to increasing portfolio allocations when the market re-establishes a positive price trend without sacrificing long-term performance.