Beacon Asset Managers'  Instablog

We have been following two potential scenarios since the beginning of September:

One, the market pauses for a well earned break between September and mid-November before re-finding its footing among negative sentiment and then resuming its upward trend at a more moderate pace into 2010.

Or, two, a repeat of the sentiment "blow off" of 2003 when sentiment broke above levels similar to today's and peaked out in early 2004 at 75.7. The index then rallied a further 10 percent to about 1150 before undergoing a six month consolidation.

Our preferred scenario is the first one, and we remain cautiously positioned (30 percent in cash and bonds) in our model Beacon Master Portfolio until mid November, at which time we will return to overweight equities and, in particular, those equity sectors that prosper between "Recession end and Earnings Recovery." We will also continue to place emphasis on those sectors and companies benefiting from strong demographics.

In terms of gold sentiment, we can see from the bottom chart that gold has now reached the level of Extreme Optimism (bearish). Therefore, our current focus is on protecting the value of our current position in gold in our model Beacon Master portfolio by being aware of any signs of potential short term sentiment peaks.

Disclosure: No Positions, but GLD is Featured in our Model Portfolio.