Too late to buy, too early to sell?

With the new month having started and the rest of a big data week ahead, Macro Man thought it might be useful to dust off his equity model for an update.  After all, narratives come and go, ever-shallower dips arrive for FunnyMoney to buy, but the numbers are what the numbers are, with emotion checked at the door.

Regular readers may recall an update a few months ago, wherein Macro Man noted that while his regression model remained very bullish, his scorecard- while still constructive- had recently downgraded to a less than maximum positive stance.  This was one reason among several that your author has not engaged fully with equities for much of the year, as it smelled a bit like "too late to buy, too early to sell."

Well, he re-ran the model with the latest batch of inputs from July, and at least half of that conclusion remains true.  The regression model is as bullish as ever- actually, check that, it's more bullish than it's been since the first flush of QE2.

The scorecard model, meanwhile, ticked over to its maximum-bullish reading for the first time since the end of last year.  According to these battle-tested indicators, therefore, the message is "time to buy, too early to sell."

So does that imply that Macro Man is preparing to jump in with both feet?  Not necessarily.   Models are, after all, not not reality themselves, merely representations of reality.   And in this case, the issue of Fed lift-off and its potential fall-out looms large; this is something that the model obviously knows nothing about.

So while he has intellectual sympathy for the dip-buyers' valuation metrics, if not their smugness, he anticipates remaining on the sidelines for a bit longer.   Six years of mispriced capital has almost certainly led to six years of misallocated capital; as the former begins to normalize, no matter how so slowly, it seems foolhardy not expect at least a little bit of fallout from the latter.