Saut: Bull Market Uptrend Remains Intact, Preparing Shopping List

by: Jeffrey Saut

Excerpt from Raymond James strategist Jeffrey Saut's latest essay (published Monday, January 31st):

... “[F]ear” surfaced again last week as the S&P 500 surrendered 1.8% on Friday. As always, the media looked for a causa proxima, trotting out everything from earnings disappointments to softening economic indicators, but the pièce de résistance was Egypt. Yet the fact of the matter is that the stock market has been sending out “topping” signals for weeks. As I related to a reporter last Friday, “The market was ready to go down and the news backdrop was just an excuse. Still, to me the question is – will this be a 3% - 5%, or a 5% - 10%, decline?”

The answer to that question might be foretold by the always insightful website. Indeed, Jason Goepfert noted that the SPX closed below 1280.26 last Friday, thus completing the pretty rare feat of registering a new 52-week high one day and then collapsing to a 10-day low the next. Jason continues by writing:

“Going back to 1928, this has occurred 8 other times. The index’s most consistent performance in the weeks ahead was 26 days later, when it was up 1 time and down 7 times. It suffered an additional loss of about 4% on average during that time. Perhaps most importantly, it took a median of 58 days to climb back enough to close at a new 52-week high. None of them were able to get a new high in anything shorter than 32 trading days, and three of them took 2 years or more to get there.”

Whatever the short-term outcome, the major averages continue to reside above their respective 50- and 200-day moving averages, which is bullish; and the Buying Power / Selling Pressure indices continue to suggest the uptrend remains intact. Accordingly, while we could see some further weakness, it is going to take a lot more than protests in Egypt to break the back of the current uptrend.

Consistent with these thoughts, I am making a shopping list of stocks to own and waiting to see how well they act during any subsequent market decline. Since over the longer-term it is all about earnings, a few names from the Raymond James research universe that beat their earnings estimates, and guided earnings estimates higher, last week include: Altera (ALTR/$37.41/Strong Buy); Celestica (CLS/$9.86/Outperform); Intel (INTC/$21.46/Outperform); Skyworks (SWKS/$31.33/Outperform); Stanley Black & Decker (SWK/$72.72/Strong Buy); and Tempur-Pedic (TPX/$43.23/Strong Buy).

The call for this week: John Templeton once remarked, “For those properly prepared in advance, a bear market in stocks is not a calamity but an opportunity.” And while I don’t think this is just a counter-trend rally in an ongoing bear market, I continue to believe we are into an uptrend within the context of the wide-swinging trading range stock market we have experienced since the turn of the century. Of course there will be pullbacks, which is what I have been preparing for since the beginning of 2011. This is also consistent with my advice of the past 11 years that investors need to be more proactive in their investment strategies.

That strategy is confirmed by the astute Bespoke Investment Group’s study of last weekend that shows a more proactive approach has beaten a buy and hold strategy since the March 2009 “lows,” as can be seen in the chart below. While I don’t think ANYONE can trade the stock market on a daily basis, Bespoke’s study makes the argument for a more tactical approach to investing. That includes raising cash at the appropriate times, hedging long investment positions that may decline significantly during broad market declines, avoiding getting too bullish and too bearish, and above all not letting ANYTHING going more than 15% - 20% against you. Currently, I have a decent cash position and look to redeploy that cash on any subsequent decline.

Source: Bespoke Investment Group.