For the past year our Intermediate Trend Factors for the stock market have been negative. During that time the United States has likely entered a recession. This can been seen by looking at the Unemployment Rate below.
While the recession at the end the chart isn't officially declared, the only time we have seen the Unemployment Rate rise as it has over the past year is during recessions.
Typically the stock market will decline leading into recessions and then increase leading up to the end of recessions. That tendency can be seen on the chart below.
Given the above it is reasonable to believe we are in a recession and reasonable to expect that the market will increase as we approach the end of the current recession. However, these statements alone aren't enough for us to change our ideal market exposure.
The recent decline in the market turned our Short Term Reversal Factors positive but with our Long Term Reversal Factors negative we weren't able to increase our ideal market exposure. However, the subsequent rebound has now turned our Short Term Trend Factors positive and has created the potential for further increases in the stock market. This potential is still muted due to still negative Long Term Reversal Factors, but it is enough to enable us to increase our ideal stock market exposure to 40%.
This doesn't necessarily mean that the current recession is almost over or that the bear market won't continue. However, neither of those can be ruled out. Also, while we believe the potential for the market to increase has improved, our Short Term Trend Factors could change abruptly causing us to reduce our ideal market exposure at a time when the stock market is trading a lower level than it is trading today.
