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Happy Anniversary Bull Market

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Today is the 6th anniversary of the post-crash stock market bottom, so just a quick note this morning as I’m at the Retail Banking Conference. I wanted to share a chart that is pretty interesting – it’s Marty Chenard’s graph of the S&P 500 since 2009’s crash bottom showing a well defined rising wedge pattern.

Here is the definition of a rising wedge from Stockcharts: The Rising Wedge is a bearish pattern that begins wide at the bottom and contracts as prices move higher and the tracding range narrows. In contrast to symmetrical triangles, which have no definitive slope and no bullish or bearish bias, rising wedges definitely slope up and have a bearish bias.

This type of technical analysis is important because it gives you insight into investor psychology more than anything else. It basically tells you that investors get complacent as prices increase and are less inclined to sell on bad news. Generally they take on more risk and possibly utilize margin loans to buy stock that they otherwise can’t afford. Then at some point they see the gains they’ve made and some begin to take profits. Then bad news at some point matters and the selling begins as investors want to preserve as much of their profits as they can. That drives the prices down and the index falls below the bottom line in the rising wedge.

So as with some of the other articles I’ve published recently, this is just a sign that a bit of caution is warranted as this market has risen so much in the past six years.

Our goal is to have some cash in client portfolios to buy companies cheaper when the inevitable pull back happens – not too much because we don’t want to underperform in the short term. We are also de-risking by rebalancing portfolios and taking some money out of big winners to get them back to strategic allocation percentages and adding to under performers also moving them back to strategic levels. Why is this de-risking? The winners have become overvalued and the underperformed shave become undervalued.

Enough for now as our meetings start soon, but I’ll be tuned into the market during the conference and will be taking any needed actions if anything eminent happens in the market.

Mark