Jeffrey Saut: It's Time to Sit - the Current 'Buying Stampede' Is the Longest I've Ever Recorded

Includes: DIA, SPY
by: Jeffrey Saut

Excerpt from Raymond James strategist Jeffrey Saut's latest essay (published Monday, January 10th):

...Driven by the rise in interest rates, as well as an improving economy, the Dollar Index has been rising from its corresponding October 2010 low of 74.60 to Friday’s closing price of 81.46. My hunch remains that the dollar will travel higher. The quid pro quo is that could spell trouble in the short-term for my beloved “stuff stocks.” Reacting to the dollar’s strength, the Reuters/CRB Continuous Future Index pulled back from its recent new all-time high to its previous all-time high recorded in 2008. It will be interesting to see if continued dollar strength will cause a pullback in the CRB Index, or if world demand for “stuff” wins out.

As for Friday’s employment data, our economist Dr. Scott Brown said it best:

“The payroll figure was a disappointment relative to expectations, but not a disaster (the upward revision to October and November takes some of the sting out of the miss). Moreover, the establishment survey data will undergo annual benchmark revisions next month. The drop in the unemployment rate was a surprise, and some observers may embrace this more favorable reading – but beware. The lapse in extended unemployment insurance benefits likely contributed to the reduced unemployment rate in December. The reported 556,000 drop in unemployment from the household survey does not mean anything (the household survey is good for measuring ratios, such as the unemployment rate, but not levels). At face value, the report is a negative for equities and a positive for bonds, but it will take markets some time to digest and there’s likely to be some confusion regarding the differing pictures from the two surveys.”

The call for this week: Herb Stein once remarked, “If something can’t go on forever, it won’t!” And, the current “buying stampede” is now 90 sessions long, making it the longest one ever recorded in my notes of more than 40 years. Combine that with many other “finger to wallet” indicators suggesting caution and I am currently just sitting. Indeed, sometimes me sits and thinks and sometimes me just sits.

As the astute Lowry’s organization opines, “Our last short term sell-signal for aggressive traders was triggered on December 30th, when the 14-day Stochastic indicator dropped from overbought levels and crossed below its moving average. A conventional short term sell-signal, for culling selective stocks [from portfolios], was registered as of today’s market close (last Friday), when our Short Term Index dropped a total of more than 6 points from its recent high of 104.”