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Eric Parnell, CFA

 
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  • About That Friday Bounce [View article]
    Hello rz2013 - Thanks for your comment and for your kind words about my article. I genuinely appreciate it. Thanks again.
    Sep 27 11:36 PM | Likes Like |Link to Comment
  • About That Friday Bounce [View article]
    Thanks abdullah999 - I appreciate it!
    Sep 27 11:35 PM | Likes Like |Link to Comment
  • About That Friday Bounce [View article]
    Hello TimmiesRegular,

    Thanks as always for your comment and your great insights as usual. You make a particularly good point about the decline in oil prices, as this has the potential to be a tailwind not only for the near-term but also for the long-term, as I believe domestic energy will be one of the primary themes of the next secular bull market in the years ahead. Great point about high yield bonds too - I completely agree.

    Thanks again and I look forward to reading your future comments.
    Sep 27 11:33 PM | 1 Like Like |Link to Comment
  • About That Friday Bounce [View article]
    Hello creese - Thanks for your comment. I appreciate your support and for making a number of great points here in your comment. You provide a lot of important perspectives for investors to keep in mind as they move forward in these markets. Thanks again!
    Sep 27 11:31 PM | 1 Like Like |Link to Comment
  • About That Friday Bounce [View article]
    Hello newbeach861 - Thanks for your comment. I appreciate it!
    Sep 27 08:40 AM | Likes Like |Link to Comment
  • About That Friday Bounce [View article]
    Hello 11146471,

    Thanks for your comment and for raising some important challenges to the discussion. I respect your points here and would like to provide some counterpoints for explanation.

    I am not a day trader, nor am I focusing on day traders with these articles. In fact, I have executed only one transaction this entire quarter (the sale of FDO not long after the DLTR takeover announcement). Otherwise, I have been in keeping this market under very close watch.

    My reasoning for these articles is the following. The U.S. stock market has been increasingly disconnected from its underlying economic and corporate revenue and earnings fundamentals since the summer of 2011 and particularly since the spring of 2012. Although economic growth has been sluggish at best in the U.S. (and relatively poor in many parts of the world) and corporate revenue and earnings growth has been generally lackluster despite ultra accomodative monetary policy from the Fed that has lowered the cost of capital to record lows and encouraged record buyback activity (thus inflating EPS - the denominator of the P/E ratio - and making valuations appear better than they actually are), we have seen a stock market as measured by the S&P 500 that has effectively doubled over this same time period over the last three years. In short, we have a stock market that has been trading well above its implied potential over the last several years with virtually no corrections along the way.

    All of this has put many investors in a tenuous position. Investors have been penalized for hiding out in cash, and there is no telling at this point whether the market might rise another 500 S&P points before finally setting a peak. As a result, investors have an interest to stay invested in the market to avoid the opportunity cost of being on the sidelines. At the same time, investors are facing a risk that is rising exponentially the further stocks elevate higher of being caught in an increasingly destructive bear market downdraft that is likely to follow and be more profound the higher today's market floats. And once investors are caught in the jaws of a bear market, it quickly becomes difficult to get out without sustaining considerable damage and loss of value.

    For all of these reasons, it is critical to watch the movements of the market each and every day for the first indications that a market top may finally be getting set. Staying long stocks in the meantime, but an extremely close watch for the earliest signals that suggest that the time to shift allocations may be drawing close. For investors will not only be well served by being prepared to avoid the downturn that comes with the next bear market, they may also have the opportunity to benefit considerably from the upside returns potential that should come by positioning accordingly through portfolio diversification and the incorporation of specialized asset classes for stocks to go the other direction in a sustainable way. These are the reasons why I believe these articles are worth writing.

    As for market volatility, I agree with you that it is highly unpredictable. But in today's market, I believe that sentiment indicators are having a diminished impact relative to the past. This is likely due to the fact that it has been the major financial institutions and trading algorithms that have played such a significant role in the market move since the end of the financial crisis, as the net outflows by retail investors since the initial outbreak of the financial crisis now stands at -$622 billion according to ICI.

    Lastly, my intent is not to communicate a "doom and gloom" message, so I regret if it has come across this way. Instead, my perspective is derived from the point that I believe monetary policy makers have unnecessarily and artificially inflated asset prices including the stock market for the last several years and have unfortunately not only delayed the much needed cleansing process for the economy and its financial markets but will have made this process all the more painful to endure in the end through their actions over the last few years. But I remain convicted to the belief that once this healthy cleansing process is finally allowed to take place, that we will find ourselves at the dawn of the next great secular bull market (I like to refer to it as a "1982 moment"). As a result, I remain most optimistic about the long-term prospects for financial markets and believe it will be the United States that will lead in this next secular bull phase.

    Thanks again for your comment and your constructive observations, as it provides me with the opportunity to better explain my intent behind these articles. I appreciate it.
    Sep 27 08:39 AM | 19 Likes Like |Link to Comment
  • About That Friday Bounce [View article]
    Hello newbeach861,

    Thanks for your comment. I basically took the entire week as a whole on the S&P 500 and viewed Wednesday's rally in the context of the overall downtrend (a blip above the downward sloping channel that quickly returned to trend). Good question and thanks for raising it.
    Sep 27 08:15 AM | Likes Like |Link to Comment
  • About That Friday Bounce [View article]
    Hello frogmaier,

    Thanks for your comment and for sharing your strategy in the current environment. And great point about keeping a close watch on swift down moves, as we are still in an environment for U.S. large cap stocks where sufficient bullishness exists to buy any and all dips fairly aggressively at this point. But volatility remains on the rise from early July lows, which to your point indicates that the punches are indeed getting harder and the dips a bit more challenging to buy.

    Great points. Thanks again
    Sep 27 08:14 AM | 1 Like Like |Link to Comment
  • About That Friday Bounce [View article]
    Hello NV_GARY,

    Thanks for your comment. This is an important point that should not be overlooked and is the reason I mention it at the beginning of my articles on this topic. Given that we are roughly 2% removed from all-time highs on the S&P 500, we are far from a point where investors should be feeling any sense of immediately alarm. It is important to be watchful, but in the context of where we are in the market cycle, as the uptrend in U.S. large cap equities remains solidly intact.

    Thanks again.
    Sep 27 08:10 AM | 3 Likes Like |Link to Comment
  • About That Friday Bounce [View article]
    Hello TDune75,

    Thanks for your excellent comment. You raise a number of very important points in today's market environment. Unlike the tech surge from 1998 to 2000 episode when a variety of other categories both within and outside of the stock market offered attractive absolute and relative value, today so many diversified asset classes are trading at historically high valuations. And for those categories that not performed as well in recent years, they do not yet appear to be at the juncture where they have bottomed and are prepared to begin reversing higher. To your point, this leaves cash as an alternative, but with it has brought the opportunity cost of watching an S&P 500 that seems determined to continue higher no matter what. Definitely a time with challenging choices for investors to consider.

    Today's capital markets do offer considerable upside through positioning for the stock market to go lower, but such positioning can only be realistically considered once a bull market peak has finally been set. This will be a development worth monitoring for in the coming days, weeks and months as a result.

    And I agree that historians will someday reflect on what we are living through today as a great learning experience for what to do and NOT to do from a fiscal and monetary policy standpoint not only in the aftermath of a financial crisis but also the preventative measures leading up to one. Interesting times to be certain.

    Thanks again!
    Sep 27 08:08 AM | 5 Likes Like |Link to Comment
  • About That Friday Bounce [View article]
    Hello dieuwer - Thanks for your comment and great point on the volume behind the late day rally. Thanks again.
    Sep 27 07:52 AM | Likes Like |Link to Comment
  • Perspectives On Thursday's Sell-Off [View article]
    Hello jpbernal,

    Thanks so much for your comment. I appreciate it. And you hit on a key point that I think will be very important once the market finally reaches an inflection point and the bull market expires. Investors have been so conditioned to buy the dips and have been handsomely rewarded for it in recent years. Unfortunately, this will set the trap for so many to eventually get stuck once the bear market finally takes hold. For once stocks fail to hold their traditional support levels, the subsequent move to the downside can pick up speed very quickly. It will be interesting to see how this all plays out today.

    Great points and thanks again!
    Sep 27 12:48 AM | Likes Like |Link to Comment
  • Perspectives On Thursday's Sell-Off [View article]
    Thanks xdentist!
    Sep 27 12:45 AM | Likes Like |Link to Comment
  • Perspectives On Thursday's Sell-Off [View article]
    Hello lhansen - Thanks for your comment. I appreciate it and thanks for sharing your strategy on the current markets as well. Great points and thanks again!
    Sep 27 12:45 AM | Likes Like |Link to Comment
  • Perspectives On Thursday's Sell-Off [View article]
    Hello FlexStr8,

    Thanks for your comment and your kind words. I genuinely appreciate it. And I agree that some of the best material on SA is found in the comment section. I always appreciate the contributions, thoughts and perspectives of those that read my articles including those that disagree with my conclusions. I find it adds a tremendous amount of value to the overall SA experience.

    Thanks again!
    Sep 27 12:43 AM | 1 Like Like |Link to Comment
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