May 24th, 2010
You have to be very cautious about some of the stuff you read on the Internet written by so-called investment managers of all strips (present company excluded, of course, since I’m not a paid professional). Here’s just a sample I happened across (names have been omitted to spare the professional managers from further embarrassment):
- “The Standard & Poors 500 Index is likely to rise to new highs for 2010 after last week’s rout removed “excessive bullishness” without pushing the benchmark below a key level ….The benchmark index for American equities, which wiped out its 2010 gain in a 6.4 percent plunge last week, suffered “limited technical damage” as it closed above its 200-day average….The majority of the evidence suggests that we will manage to extend this cyclical bull rally for another few months.” (May 13, 2010; S&P 500 at 1157.44)
- “The biggest drop in U.S. stocks since the bull market began may be over after the Standard & Poor’s 500 Index generated a chart similar to the one that signaled the market’s last bottom….The benchmark formed a hammer-shaped candlestick on May 17, trading 1.8 percent below its opening price before rallying later in the day to close near the day’s initial level. At the same time, the body of the candlestick was located within the range of the previous day’s, generating a bullish harami — a reversal during a downtrend — for the first time since February.” (May 19, 2010; S&P 500 at 1115.05)
- “Fundamentally, stocks are looking pretty cheap,” with the price-earnings ratio of the S&P 500 has dropped from 17.7 on Apr. 23 to 15.7 on May 21. The average p-e ratio over the past 30 years is 17.8…..buying stocks hit the hardest by the recent correction, especially technology stocks and companies in economically sensitive sectors such as industrials and materials. That’s where you can get “the biggest bang for your buck,” the stocks likeliest to bounce back the most whenever a bull market commences. (May 23, 2010; S&P 500 at 1087.69)
- “clients who come in with longer-term 3% and 4% certificates of deposit that are maturing are shocked at how hard it is to secure just a percentage point in today’s money markets. Yet they remain wedded to an ‘anything but stocks’ mentality. People have gotten hit real bad and watched their investment houses get bailed out—or worse—and then interrogated on Capitol Hill. So you gonna listen to your broker?”… since last year’s market bottom investors have pulled $24.6 billion out of mutual funds focusing on U.S. equities; over the same period, they’ve channeled $455.6 billion into bond funds…households have $7.8 trillion in bank accounts and money funds. (April 29, 2010; S&P 500 at 1206.78)
The reason I bring these to your attention is because, honestly, there’s not much for me to write about these days. I don’t see any new Industry Groups that are moving contrary to the market. With market momentum, as reflected in the moving averages, clearly pointing down, there’s little incentive to search for stocks to buy. The decision I’m facing is deciding when and how much of what remains to sell (currently, my cash percentage is about 50% with another 20% in hedges).
The S&P 500 Index is a mere 5% above the 300-day moving average at 1033. Crossing below that level would be an unequivocal sell to all-cash signal. We have a game plan and we’re going to stick to it…..until the market tells us otherwise. By the way, if you want to follow that game plan in real time, subscribe to Instant Alerts and Recaps.