[this is our letter to clients 2015/09/21]

The S&P 500 continues to look very weak, even though it has recovered from its worst levels in the last several days.

We continue to hold large cash positions (and have done so for a few months now) either for retiree or near retiree accounts that cannot tolerate a potentially large draw down, or for accounts that prefer to make tactical allocation changes between cash and stocks in the face of infrequent but potentially large price declines in the S&P 500.

We sincerely hope we are in no more than a correction, but believe by virtue of rational indicators that more may be brewing.

We would rather be safe than sorry, and are prepared to incur certain opportunity cost in lieu of capital loss by holding significant cash positions – which we expect to reinvest when the same indicators suggest the dark skies have cleared.

In an end of August letter we discussed a variety of Bull/Bear indicators — which we subsequently published on our blog titled:
Correction Yes; Bear Probably Not Soon, But Possible — Key Indicators Discussed

The last two images in this letter update the summary tables for that discussion.

The following chart introduces you to a simple set of 4 binary indicators we have found collectively to be a pretty good indicator of major market trend changes, based on monthly data. Taken together those 4 binary indicators suggest we are 75% of the way to a clear market EXIT point. The Money Flow indicator (one of the 4 binary indicators) is the 25% that is still positive