Archive for March, 2012

Happy Anniversary

Friday, March 9th, 2012

S&P 500 Long Term Chart

I’ve been in Washington, DC, all week in meetings, but I didn’t want today to go by without recognizing a pretty important anniversary. Three years ago today on this blog I wrote to you that we were moving to a 100% invested position based upon the indicators we follow flashing signs that the market was at a historically oversold level after the 2008 Crash.

As you can see from the chart above of the S&P 500 that we have roughly doubled from the lows in early 2009. Those people that listened to the talking heads on TV to “Sell Sell Sell” missed a massive recovery based upon improving corporate earnings and economic fundamentals.

Russell 2000 Small Cap Index

The recovery has been even more dramatic in small cap stocks as you can see from the graph above of the Russell 2000 Index. Not only are small cap stocks up 150% since the post-crash low, they have almost recovered completely to their pre-crash highs.

Dow Jones Growth Stock Index

Growth Stocks have been the leaders of this recovery as you can see from the Dow Jones Growth Stock Index above.

Dow Jones Large Cap Value Index

While Value Stocks have lagged the recovery considerably.

One of the problems of blindly selling everything during a market crash is knowing when to buy it all back. The unfortunate thing I see now is that there are people who are now ready to jump back into the market after the most significant part of the move has been realized.

To survive a crash, you have to manage your portfolio back to recovery. That means using analysis to tell you to raise cash before the market drops so you have cash to put back into the market when it bottoms. You don’t want to sell after the big move down and miss the big move up – that is how so many people have harmed their retirement prospects by moving their 401k’s out of the equity mutual funds they owned out of the market when it went down and have owned bonds and money market funds as the market recovered.

But the real question is whether there is more upside ahead of us.

ndex AnnotatedS&P 500 Index Annotated

You are probably pretty familiar with the graph above as some version of it pops up here pretty frequently.

Last week I wrote to you that we had decided to raise some cash in client accounts based upon the topping action I saw in the graph, as investors seemed to be losing momentum and the market could not seem to push above the previous resistance at 1370 on the S&P 500 Index. I am happy with that decision as the market sold off and is trying to make a move back to the level where we raised cash.

This was a near term risk management move. Intermediate term, I am pretty constructive on the US market and think we could see it move higher. However, there can be any number of things happen to have it move down before it moves up. We could easily see a move down to the 50-day moving average at 1325 or down to the 200-day moving average at 1260 if we don’t clear the over-head resistance.

These graphs, as I’ve written in the past, represent for me investor sentiment. Over the past three years as the fundamentals of earnings and the economy have improved, investor sentiment has improved. Last year we had a breather in the move higher as investors were wary of whether the fundamentals would continue to improve.

However, this year we’ve seen a full buy-in that the fundamental parts of the recovery are solid and the market has moved higher. Now that we are bumping up against the resistance, investors are getting slightly cautious, but I think they will – sooner or later – break through the resistance level and move higher.

What I am looking for next is a successful completion of my Rule of Three ( Mark\'s Rule of Three ) in breaking the overhead resistance, and we will move back to a fully invested position. We had sold half of our pure beta SPY allocation, booking the profits on it, and will re-buy it if the market closes above 1370 for three consecutive days.

So, Happy Anniversary, and I’ll keep you updated here as this bullish recovery from the crash continues to play out.


Click here for today\'s video on YouTube

Mark

Oil Hits $110 Today

Thursday, March 1st, 2012

News of a Saudi oil pipeline explosion moves the price of oil to 10-month high.

Lots of conflicting stories out there, but the Arab Digest has this story with pictures of the area on fire:

Click Here for the Arab Digest story

The Saudis are denying it but a few news sources in that part of the world are running stories like the above.

In spite of this sort of thing, the stock market closed up today.

Very interesting times…

Mark