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Excerpt from Raymond James strategist Jeffrey Saut's latest essay:

In our joint interview last Thursday with former CNBC commentator Ron Insana, the astute Mr. Insana stated that it could take time to resolve [questions about whether investor psychology has changed], and was summarily taunted by his former colleagues for even suggesting that maybe a psychology change would make this decline more severe than those seen over the past four years. We quickly agreed with Ron and noted that the thing that worries us the most is the fact that the bond market believes something is wrong. Indeed, the benchmark 10-year T-note was yielding over 5.3% on June 13, 2007, but fell to 4.75% last week in a "flight to quality." Over the years we have learned the hard way that the bond crowd is smarter than the stock crowd and the bond crowd is clearly worried!

A quick perusal of our notes also suggests that this decline may be different, for the 400-point Dow Dive that occurred last February 27th saw the next day's action stabilize with the DJIA closing up by 52 points. Unfortunately, that did not happen on Friday as the "brass band" cheering session, punctuated by President Bush's attempt to talk-up the markets, was to no avail with all of the indexes we follow closing near their lows for the day. The result left most indexes below their respective June lows, as well as below their various daily moving averages (DMAs). Indeed, EVERY market index closed below its 50-DMA and some closed below their 200-DMAs. Also worth noting was that all of the S&P major market sectors closed sharply lower for the week and among the sub-sectors only nondurable household products and biotech were positive. Moreover, last Tuesday (-226 DJIA) and Thursday's (-311 DJIA) declines qualified as 90% downside days with both down volume and points lost 90% greater than up volume and points gained. In fact, on Thursday 479 of the 500 equities in the S&P 500 declined, pushing the advance/decline ratio to an extremely rare 1/18. While some will argue that this is the kind of action seen at market lows, our proprietary indicators are nowhere near oversold levels.

So what are we to do? Well, Ron Insana's word was "unknowable" in the short term and we agree. How this will play out is a function of who is carrying what position, how leveraged they are, and how those positions will interplay. What we do know is that by our pencil only the U.S. Dollar, crude oil, and Treasury Bonds rallied last week. We also observed that the Japanese Yen was strong, suggesting that perhaps the Yen carry-trade is unwinding. ...we would stick with the multinational companies, preferably ones with a yield, like General Electric (NYSE:GE).

Source: Jeffrey Saut: Bond Traders Are Worried, So Am I