2009Oct5 Stock Market Enters High Risk Arena
2009Oct5 Stock Market Enters High Risk Arena
We have officially ushered in the beginning of Fall, 2009, and sooner rather than later we will start to see all shades of reds, yellows, and oranges appear across the surrounding landscape. All of the kids are back to school, the 2009 football season is underway, and the “Madden curse” has already struck Troy Polamalu. This all comes after a summer filled of long weekend trips to the beach or mountains and annual family vacations. While many have received some much needed rest and relaxation over the past few months, the stock market has been anywhere but on vacation. The strength that we began to see in the market this Spring carried over and into the summer months.
What has transpired over the past few months was an extremely broad move higher amongst all stocks. During the “dogs days of summer” every single broad area of the stock market has been carried higher by the generally rising tide of the market. Stocks, in general, have not just rallied, but they have experienced an historic rally.
This rally has led much of the media to ring the alarms that the next great collapse is coming; and we have heard thousands of reasons why the stock market should go down. This has been the case for the last few months in spite of significantly lower consumer spending.
Despite what the financial media “thinks” the market should be doing, we don’t want to become victims of following the crowd by turning to the financial news media for investment advice. The goal of these outlets is to get more eyeballs to watch or listen, not manage a portfolio. Our goal is to balance risk with reward in your portfolio. We have turned off the TV and radio, and instead we have turned to charts and data to analyze changing trends in the market place and how best to position your portfolio.
Right now we are continuing to see some of the same themes holding true heading into the Fall that began to emerge back in the Spring. For instance, International Equities continue to be the strongest area of the financial markets, specifically the Emerging Market areas. Secondly, the broad strength in the Domestic Equity market was enough to overtake Commodities, which had been a leader for the vast majority of the year. This is not to say that Commodities have weakened significantly, rather that Domestic Equities have just been that much stronger. Gold, for instance, has been trending lower from its $1,024 high and nearly created a sell signal.
If you contact us we will send you a recent image of one of the main equity risk indicators that we follow for guidance -- the NYSE Bullish Percent chart. This is an indicator we use to determine whether to be on offense in the portfolio, or defense. If in a column of X's it suggests playing offense. On the other hand, a column of O's suggests playing defense. We have highlighted the column to the far right. As long as this column remains in a column of X's, it suggests that we are going to continue to focus on accumulating wealth, or playing offense, in this market.
We have no way of knowing how this offensive possession will play out. Maybe it lasts for another week, and maybe it lasts for another year. The bottom line is that as long as the indicators that we follow, that are based on the irrefutable law of supply and demand, remain positive then your portfolio should be positioned to take advantage of a positive market condition. However, these same indicators that favored buying stocks in early Spring, are the same ones that suggested tremendous caution in the equity market for the entire year of 2008. We will not anticipate when these changes will happen. However, when these indicators change to a more negative posture, it is necessary to become more defensive in the portfolio.
If you have questions regarding these strategies, would like a free Bullish Percent chart of your portfolio or would like to schedule an appointment, call the office at 800-317-9119. Any staff member can schedule a meeting or a phone appointment on our calendars.
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