Last week we added equity exposure to our portfolios that were underweight stocks. Seven weeks ago, with the S&P 500 at around 1340, we reduced equity exposure in our more conservative portfolios in response to both an extreme optimism reading in the Ned Davis Research Crowd Sentiment Poll and the S&P 500 stretched by 12% above its 200-day moving average. At last Friday's close, the S&P had fallen to 1268, testing its 200-day moving average, and the Crowd Sentiment Poll had reversed from extreme optimism to extreme pessimism. We believe that the 200-day moving average will provide technical support. As long as the primary trend for stocks is rising, and with sentiment now suggesting that a good deal of negative economic news is factored into stock prices, we see a tactical buying opportunity (see Weekly Chart).

David Fuller's view Subscribers will be interested in the chart referred to above, not least the Put/Call Ratio.

Fullermoney's "best-case" scenario for this corrective phase, most often mentioned by Eoin and me in the Audios, was that with important indices such as the S&P 500 and DAX, selling would be checked near the 200-day MAs while ASEAN indices such as JCI, KLCI and PCOMP would outperform by holding near their highs, prior to leading the next advance in global stock markets. This scenario was also dependent on a meaningful setback for commodity prices, not least crude oil (Brent & WTI).

Over the last two weeks we have also been looking for a technical rally and there has been some rebound.

The good news is that crude oil and many other resources have experienced setbacks, although one should not be complacent following this moderate degree of respite in commodity price inflation. We maintain that the pullback is occurring within a secular bull market for resources which we first identified approximately a decade ago. Moreover, Brent, WTI and CCI have only returned to rising MAs, as you can see above.

Provided commodity prices remain quiescent, not least in terms of energy costs, we believe that the odds of a favourable outcome for equities during 2H and particularly 4Q 2011 have improved relative to a worst-case scenario which I have previously described as a small bear market.

Meanwhile, summer rally aside, on average this remains a period of seasonal underperformance. Nevertheless, we also maintain that this is a reasonable time to be incrementally accumulating stakes in either Fullermoney secular themes or whatever other equities you prefer for the medium to longer term. The best time to lighten positions, we maintain, is when they are trading well above their rising 200-day MAs and the consensus is bullish.