Excerpt from Raymond James strategist Jeffrey Saut's latest essay:
Indeed, while we were pretty bullish at the mid-July “lows,” we subsequently sold those trading positions into strength, thinking that the upside “buying stampede” would exhaust itself in the typical 17–25 session timeframe, which implied the equity markets were due to peak during the week of August’s option expiration (August 15th).
Moreover, many of the finger-to-wallet indicators we use to identify major market “lows” were sorely lacking at last month’s downside selling climax. However, we opined that the “selling stampede” in groups like energy/gold might be coming to an end during that same option expiration week since their respective downside skeins had lasted the perfunctory 17–25 sessions.
Accordingly, for trading accounts, we recommended the scale-down buying of select Exchange Traded Funds (ETFs) playing to those groups. And given the large rallies in those groups last week, prudent trading types should have sold partial positions respectively. As for investment accounts, we continue to emphasize the clean balance sheet, solid fundamentals and dividend yielding names so often mentioned in these missives.
The call for this week: According to Lowry’s,“[Last] week’s increase in Selling Pressure, to its highest level of the bear market (thus far), plus the lack of 90% Downside Days immediately preceding the mid-July market low[s], showed no signs of [the] diminishing selling so vital to the start of a sustained market advance. . . . [Indeed] The rally in the DJIA from its July low to [the] August high has been characterized by a steady increase in Supply (read: sellers) and sluggish Demand (read: buyers). This combination appears much more consistent with a rally in a bear market than with the start of a major move higher.”
Regrettably, that’s the way it has been since we wrote about the Dow Theory “sell signal” of last November. Meanwhile, the DJIA (11628.06) and S&P 500 (SPX/1292.20) have broken below their respective March 2008 “lows,” while the small-cap (SML/387.46) and mid-cap (MID/814.92) indices have not. And don’t look now, but commodities had their biggest weekly rally in decades last week as things continue to get curiouser and curiouser.