My recent cautious stance has elicited a number of e-mails questioning if I am about to change my outlook given the fact that the elusive "correction" has yet to materialize..
As we approached the mid-July to mid-August timeframe I have once again been adhering to the "take some profits off the table" strategy , selling calls raising some cash in anticipation of a decline in stock prices. So far, that strategy has been somewhat wrong-footed. Still, you have to trust your instincts and your indicators as they apply to the stock market. Over the last four to five weeks I have looked at some of the indicators I use to determine if we should be playing "hard," or ratcheting back a bit. I have also mentioned why the seasonality patterns suggest it is a time to be more defensive. Sine we should always be mindful "that anything can happen" and in practicing good risk management with this middle of the road approach I have garnered gains and chose to not "bet the ranch" no matter how good I perceive the market. I lean to adhere to the old saying "if you are going to be"all in" and "bet the ranch" , you better have two ranches.
July 2013 racked up impressive full-month gains finishing July with a top 10 performance when compared to all Julys since 1950. Gains of this magnitude for July, however, have frequently been followed by a late-summer or autumn selloff presenting better buying opportunities than now.
However, despite the negative weight of the evidence, like the fact that the S&P 500 (SPX/1709.67) is stretched VERY far above its 200-day moving average last week's strong action corrected some of those negatives. Now, most of the indices I monitor are now back above their respective 10-day moving averages. The most significant move came from the economically sensitive D-J Transportation Average (TRAN/6651.69), which gained an impressive 2.76% last week. Its new all-time high was confirmed by the D-J Industrial Average (INDU/15658.36) with a new all-time high of its own, thus sending another Dow Theory Buy signal. Contrarian indicators like overall short interest which has shown a spike to the upside again , along with less bullish sentiment from the NAAIM & AAII surveys.
Yet in the negative column is that the NYSE Advance/Decline Line has not confirmed the upside. So we wait, waiting to see if the weight of the evidence lines up leading to the first meaningful decline of the year. If my cautionary stance proves wrong, it will not be the first time I have been wrong. I am often reminded it is no disgrace to guess wrong, the disgrace is to stay wrong! (like the ongoing bear cases that are in full display on a daily basis)
However, remaining stubborn is a dangerous trait! So this week, and next, should tell us if my cautionary call, within the context of a secular bull market, is going to pan out. The essences of portfolio management is the management of RISKS, not the management of Returns. ALL good portfolio management begins with this premise!"
Let's see where this takes us and as always be prepared to be flexible in your investment approach, remaining in the mindset of my secular bull market theme.