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A Return to the Trading Range

S&P 500 Trading Range

I had a couple of emails from readers wondering why I haven’t posted on the blog in a few days. Well, sometimes life gets in the way.

We’ve been busy putting cash to work at the bottom of the trading range, rebalancing portfolios, swapping to higher beta holdings, eliminating small positions that we bought hoping to add to on weakness but that never panned out – that sort of normal investment management activity. We’ve been selling short-term fixed income holdings and moving those into equity positions, and we’ve been reducing holdings of gold after its historic run to record highs.

This last change is a contrary move based upon years of experience of seeing the herd move in one direction (everyone is now recommending that you buy gold – that is generally a sign of a near-term top). Gold, however, has a long run ahead of it after what I assume will be a bit of a pause. Inflation is the only solution to a $20 trillion national debt, and gold will be a big winner when that happens.

In previous posts I told you that we felt good about the bottoming process that was being put in by the market action. The green box in the graph above represents an area of the market where valuation is compellingly below historic averages, making this a good time to buy for an intermediate term rally.

There are even a number of reasons to think that we may have put in the lows for the year – but it is probably premature to think that. In the near-term, look for the S&P to make a solid run to the 1070 level, then push higher to 1115, and then the 1140 area (the pink box is where we will target reducing equity exposure again and add to short-term fixed income positions).

I am in the process of writing the Investment Commentary section of the quarter-end report and will give some of the fundamental and technical perspective on why we anticipate that buying at the bottom of the trading range makes sense.

Anyway, we’ve been busy at work trying to make our clients money in a difficult trading range market. Do you hear the thunder? Its the sound of a Summer rally :)