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INDEPENDENT Financial Advisor / Professional Investor- with over 30 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • The Secular Bull Story Continues With The "Sweet Spot"  17 comments
    Dec 28, 2013 3:33 PM | about stocks: CSCO, TGT, RIG

    Sentiment indicators have been in the financial headlines lately as we have seen numerous bullish readings from the AAII. (American Assoc. Individual Investors) http://seekingalpha.com/currents/post/1482541

    These can and often used as contrary indicators that can be useful in calling short term trends. As they are published weekly they can be volatile, swinging from overly bullish to overly bearish in a blink of an eye.. Lately the talk has been centered around the bullish sentiment...

    What about the "average" guy out there ?

    From A recent Gallup Survey ....

    "U.S. investors are generally wary about stocks as a way for Americans to build wealth, as only 37% say the stock market is an "excellent" or "good" way for average Americans to grow their assets, while 46% consider it "only fair," and 16% call it "poor."

    This is according to the Nov. 7-11 Wells Fargo/Gallup Investor and Retirement Optimism Index survey -- conducted shortly before the Dow Jones industrial average crossed the record 16,000 mark in November.

    "Still, U.S. investors' positive outlook seems muted. In November -- after three quarters of solid stock market gains and the Dow on the verge of breaking 16,000 -- barely half viewed it as a good time to invest or expressed optimism about where the market is heading in the next 12 months. This begs the question of what it would take for investors to show real exuberance about the stock market. The answer is likely a strong stock market coupled with a booming economy -- the combination that produced 60% or better optimism on this measure in the late 1990s. "

    That is why I keep mentioning two important points , the 'average Joe hasn't embraced this market.. It's still unloved and even "hated" by many ..BUT when all things look "rosy", as suggested by the strong market , booming economy commentary --- the market may just be at a major top..... Well, we aren't close to that point, given a backdrop of a steady, slow growing economy (3% or so GDP) combined with the issues that are on the front page - Obamacare , etc. Instead, I believe we are in the "sweet spot" of this recovery that is indicative of the secular bull story I maintain..

    Some may fear (this is the new cry from the "bears" ) that the oversized gain in the stock market during 2013, is surely to be followed and punished with losses in the coming year. However, historically after a one-year total return in the 25 - 30% range, the S&P 500 has followed it up by more solid years of gains. In fact, the average return in a year following a 25 - 30% gain was 12%, and stocks posted a double-digit gain in four of the five occurrences (the exception was 1961's gain of 26.9%, which was followed by a loss of 8.7% in 1962) In fact, most of the years were actually followed by several years of strong gains, as was the case in 1943,2003, and 2009. Now in case the naysayers haven't noticed, this market is in that 25-30% sweet spot mentioned above..

    There have been many reasons presented here in this blog , based on historical data, that continue to bolster that theory, some can be viewed here : http://seekingalpha.com/instablog/706857-fear-greedtrader/2502891-market-update-12-20-its-all-about-the-economy

    And shown below is another graphical depiction of market history :

    (click to enlarge)

    Notes from a Liz Ann Sonders presentation (Chief Market strategist for Charles Schwab)

    As the chart shows, the 10-year average of annual market returns is still running below typical long-term performances. "Notice the long-term pattern of this chart," "Investors don't spend a lot of time hanging around the median line, but instead the market tends to trend in one direction for multi decades (well-overshooting the mean) before heading back down to well-undershoot the mean. "Being less than five years into the upcycle, history suggests we have more room to run,"

    My .02 -- Take a close look at where we are in this picture and look at what may be in store over an extended period of time.... My secular bull story ...

    Now, lets put that in context.. There will be corrections, in fact, some very deep. There will also be a cyclical bear market thrown in (20-25% or so drop) ,that is typical and Normal, However, the evidence I have maintained and presented all year is still intact. I believe the Long Term Trend is decidedly in the Bulls favor ....

    Inflation as a piece of the secular bull puzzle.. It's a key ingredient to the secular bull story. Other secular bull markets were ignited when inflation was beaten down -- 1982 , Fed Chair Volcker and his campaign against inflation, and look at the S & P chart to see where the market went from there.. Its crucial to keep inflation in check ..

    The advances in technology, coupled with the rise of China's manufacturing prowess, have driven down the prices of manufactured goods at the same time that they have boosted the productivity of labor. Labor is much more productive today, thanks to our computing power, overall tech advances (3D printing) and the internet. ( Cloud technology one of the drivers for this sea change is in its infancy) These strides have made it so that it takes less and less input from people to make more and better products. One of the reasons the recovery on Job growth has been so slow.. Corporations can survive quite nicely with less people..

    You will get an argument from just about everyone as to how much inflation is out there and of course how it's calculated. Let me state that I look at the data that money managers and chief strategists use in their game plans.. IMO these figures are the only set of data that matters.. And here is the inflation picture as of today (from the scottgrannis blog) :

    (click to enlarge)

    On a year over year basis, headline inflation has dipped to just below the Fed's desired target range. I can add that the 6-month annualized rate of inflation according to these same two measures-shows inflation is running at a 1.3% annual rate and well within the Fed's target range .. The nice thing about all of this is that monetary policy has had little if any effect on this data.. For those that still want to argue this, all they need to do is look at Gold prices .. No Inflation equals lower gold prices and the 27% drop this year in Gold has signaled just how benign inflation is...

    The run to new highs into the end of year continues, and so does the secular bull theme as the pieces to the puzzle are in place....

    I'm not chasing anything here,, instead I sold calls on FB (Feb 65) to take advantage of the recent gain and generate income. It's an example of how to manage some of the gains. (V) is another candidate to so just that ..

    (TGT), (CSCO), (RIG) , all can be bought here for dividends and gains in '14 ...

    Best of luck to all....

    Disclosure: I am long CSCO, TGT, RIG, V, FB.

    Additional disclosure: I am long numerous equity positions , all can be seen here in this blog....

    Themes: Secular Bull Market Stocks: CSCO, TGT, RIG
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Comments (17)
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  • Bullish without any other indicators of a market top -- as you outline, doesn't equal contrarian indicator. That debate is long done for me. We're in the middle of a recovery that's just getting started. Very good years are followed by good, because that's the trend -- things are improving! The speed varies.

     

    Only hesitation is if Tack's thoughts on low commodities for 3 years, is an indicator of contraction. If doesn't seem to be from GDP, and various things you've outlined. ...such as more efficiency leads to better earnings ratios even with all else remaining the same.

     

    ------

     

    However! - Any thoughts on "contrary indicators that can be useful in calling short term trends."....For the correction that may be coming (or seems to be imaginary)?

     

    Looking around this level of bullish seems to steadily correlate with a correction within six months. I don't find that useful... Are there any more accurate shorter term indicators? Or is this level, high enough to indicate anything? This article, paragraph 5's numbers would make it not much of an indicator:
    http://bit.ly/1lpUL4o

     

    This article's list of high bullish sentiment would indicate they come at a time when the next 5-6 months are bullish then followed by correction: http://bit.ly/1lpUL4s
    Therefore my sense is to conclude that those polled are in the industry, and have a clue... and that bullish is because bullish is where it's going. The downturn may come while bullish is still high, but the high isn't an indicator or trigger. Other things must be the indicator/triggers (such as over valuations).

     

    Any sectors that tend to lead at different points? Are they doing it now?

     

    Any thoughts? Thanks for the article!
    28 Dec 2013, 10:11 PM Reply Like
  • Author’s reply » We can add this commentary to show how one indicator may not tell the entire story

     

    "U.S. fund managers increased their average cash positions in December to the highest level in nearly six years and slightly cut their equity holdings, a Reuters poll showed ... Cash levels rose to 4.4 percent of assets this month, the highest level since January 2008 ... "
    -Reuters, Dec. 20, 2013

     

    My .02 -- The fund mangers were obviously locking in gains , but to have a cash hoard similar to 2008 is indicative of fuel that can be added on any short term dip.. Corrections may indeed be short & shallow..
    29 Dec 2013, 09:39 AM Reply Like
  • So... you're saying the raising cash can indicate a bearish mood, but when put with the bullish sentiment, it's more likely locking in profits and will make dips, shallow.... if I'm understanding correctly?

     

    That's a good point, to not take things "out of context," in investing, i.e. use multiple points of data even to interpret each one.

     

    The sentiment indicator asks what fund managers expect 6 months out. Meanwhile, the Reuters news states current action & expection. I'm not sure if it indicates -expectation- of correction to buy into... or simple -precaution- based on valuations, and hope for one.

     

    Either way seems like cash-raising sentiment favors a short term correction. Wonder if that indicator is useful as a contrarian indicator? Or a direct indicator? Though your point is well taken, that it does indicate corrections will tend to be apparitions (dips) that disappear quickly.
    29 Dec 2013, 11:44 AM Reply Like
  • Author’s reply » LOMAH,

     

    As far as the "cash" situation.. Difficult to say if they are skeptical of the near term or just taking profits.. The fact that they have that amount of money now available would indicate to me that if we see a correction of any sort it might be shallow as they will start deploying that capital back into the market.....

     

    As always a lot of 'crosscurrents' around and its best to just follow a plan rather than be overwhelmed with a variety of signals...
    29 Dec 2013, 02:40 PM Reply Like
  • FG,

     

    I'm asking for general learning. Ten years from now, when I see the same pattern, I'd like to have this info in the back of my head... so when it's really close to a top or bottom or in the middle, I won't get nearly as confused by the swirling.

     

    You've used indicators to figure out it's a bull market. I'm learning a bit of everything, so I can decide what indicators are useful... and the so many that aren't.

     

    On a plan - I'm still trying to figure out my plan, so I can't stick to it yet. Because I'd like to have a lot in indexes right now (I don't have enough time for to research fast enough nor have I built confidence in my stock picking yet enough to make it my only method)... and getting into indices is about general economic fundamentals & timing indicators... not stock fundamentals... so all the swirl can be helpful clues.

     

    But mostly it's what I said at first... I was reading because that's why I came to SA -- so I could learn the terms and ideas used by investors... so that I can read through articles and figure out what they're saying. (At first it was like reading a foreign language & so many contradicting ideas.) Plus have my own opinions on what's good info articles and what's not thought through. Being new enough, stuff interests me that you've long since gotten bored by :)... just because.

     

    My conclusion on the sentiment indicator is that it's pretty vague as an indicator... implying that sometime in 5-6 months there'll be a correction. It can change on a dime. So I'd conclude that it's not useful to pay attention to most of the time. It goes back to a question I'd asked Southern ages ago & his answer which was that it's the overvaluations that's key to whether a correction or crash is coming. Sentiment is only an indicator of reaction to conditions such as valuations. From what you've written, I'd guess that you have a similar view...
    29 Dec 2013, 03:18 PM Reply Like
  • LOMAH, SouthGent is still writing here on SA. I always appreciated his comments too. We should invite him over to F&G's posts.

     

    For the most part, I hate to sell. If a company still looks good after all the due diligence research, a fall in the price is when I like to add shares. Companies that are too hard for me to understand, like (AMZN) I stay away from. However, if it's a good company with a proven track record, at a darn good price (beat up is best, like (IBM) with a really low PE but still doing business….now I'm looking at (CAT) too as it is really banged up) then I don't mind buying in slowly over several months. David Fish's CCC list can give you a great place to start looking at great companies.

     

    I see you like ETFs. Holding on to them long term can be very profitable too. Vanguard has some really good ones. Since I'm now into the individual stocks, my expertise with ETFs/mutual funds is zip.

     

    The strategy of putting money to work, month after month, in small amounts really works. It's generally not a good idea to put massive amounts of money into the market, all at once. Plus diversifying helps to keep your investments balanced, so they all don't tank at once. When we get a big downturn, that's the time to add to positions & double up on your monthly buys.

     

    The hardest part is when to sell. If your stock is up over 30%, maybe selling a few shares won't hurt. However, what if you continued to hold, because it is a great company? So I hold the blue ribbon ones. Imagine after 30 or 40 years….incredible money can be made. On the other hand, if I've bought a really speculative company that doesn't have a proven track record, then taking some profits is a very wise thing to do. (KKD) (GALE) (AMBA) all are an example of this. I'm up over 40% in (AMBA) in my IRA. So far I haven't taken any profits. Waiting another 6 months to a year before I'll do that, as (AMBA) just went into a partnership with Google. A few months ago, I was up over $3,000 with (KKD). Didn't take any profits. Now it did go down, quite a bit, but I'm holding it & watching it appreciate back up. I do believe over the long term, (KKD) will be a winner. They are expanding overseas even more than here in the US. However I did miss out on taking some of that profit.

     

    In the past, I held about 30% of our investments in individual bonds, corporate in the retirement accounts and municipal bonds in our investing portfolio. I'm so glad to be out of bonds. Limited gains, only about 6% a year was holding our portfolios back. But if you are older, and worried about market volatility, bonds can let you "swan" = sleep well at night. If I had lots of cash, and I needed a steady stream of income, and I was in retirement plus over 75, then bonds might be a great choice.
    2 Jan, 05:55 PM Reply Like
  • Author’s reply » LOMAH,
    I would agree with you ,, the sentiment indicators are just one of many to try and figure out what may develop in the short term,, I will say that I do pay attention to it when it gets to these levels... Yes , it does seem like a foreign language at times , and that's why i suggest that it can and does confuse us all . I understand where u are coming from regarding using the indices for your investment at present ,, Here is one example of how individual stocks selection can be useful If we take a look at names like CSCO, TGT. For me they are both worthy of purchase no matter where the market is at the moment ,, they are undervalued . Even if the market does correct from here , they have limited downside ,IMO.. A stock like TGT is a div aristocrat (46 years of dividends ) with div growth ,that is on sale because of poor guidance and a credit card incident. Over the long haul , we wont remember theses incidents as the 'good" companies get it straightened out and their prices rebound . In my view its easier than playing the indices or an ETF... PLUS u are getting paid the dividend while u wait... 

     

    Now take the other approach, if you are looking at an etf or indices your timing has to be much better if you are looking at the short to intermediate term. IMO that is difficult..
    29 Dec 2013, 06:10 PM Reply Like
  • F&G agree with you, short term is very difficult to judge. Long term, we will see things sort out & the markets will make money. Good companies will continue to do well….today was a good day to buy small amounts of those companies. Sort of like buying shoes, clothes or items at the grocery store when there is a sale.

     

    I'm pretty much invested at this point. I'm patient, if we get a really big down day then I'll buy a little. Meanwhile, dividends keep coming in.

     

    We may see quite a bit of volatility in the next week or two. Until some earnings roll in, and those companies give us their future outlook. Tomorrow there's an unemployment number, maybe some folks are unwilling to buy or are taking some profits until they see that it's a good number.

     

    I don't worry so much about the short term. Even in 2008/2009 as the market fell, I was putting new money to work and re-investing dividends. Now I take the dividends in cash, so there's always some cash coming in for future opportunities.

     

    I'm a long term investor. Traders handle the market entirely differently, constantly buying & selling as they see opportunities.
    2 Jan, 05:20 PM Reply Like
  • F&G, thanks for another informative article. Also enjoyed your "Dogs of the Dow." When good companies are beat up, that's the time to jump in.
    2 Jan, 05:30 PM Reply Like
  • Author’s reply » Blue ,

     

    Thanks for the commentary,, I agree the short term is also a big question for me right now , buy like u I'm here for the LT,, picking up bargains when they present themselves..
    2 Jan, 05:35 PM Reply Like
  • Author’s reply » Update to the Bullish sentiment indicator
    From Bespoke group....
    Although the S&P 500 closed right near all-time highs and newsletter writers are more bullish than they have been since October 2007, bullish sentiment among individual investors actually declined this week. After hitting 55.06% last week, the American Association of Individual Investors poll of bullish sentiment dropped to 43.09% this week. That twelve percentage point decline in bullish sentiment was the largest one-week decline since April. While there have been spurts of bullish sentiment among individual investors throughout the last several months, they have not been very long lasting.

     

    As mentioned these sentiment indicators can change on a dime .. I give more credence to what i posted from Gallup -- the average investor hasn't embraced this market ...
    2 Jan, 05:50 PM Reply Like
  • I am reading the same stuff F&G, mostly on CNBC & Yahoo finance. There is still tons of cash on the sidelines….people seem to hate stocks & bonds at the same time. Call me crazy, but I'm not ever pulling out of the market. If I've got good stocks, I'll hold them until either the dividend gets cut, or their business model tanks. Buy quality, then you don't have to worry as much.

     

    As I get older, I'll switch more into bonds if doing the research gets to be too much.

     

    Where was my head back in the 1980s? If I'd been as committed to investing back then, I'd be slurping a cocktail on the beach right now, living off of the dividends!!! Never too late tho, someday my husband & I will get there ; )
    2 Jan, 06:02 PM Reply Like
  • Author’s reply » Blue,,

     

    I hear ya, U & me both would have our own islands by now,, but we got our collective 'heads" in the right direction now . For me it comes with age and experience .. But i am glad i got here ... :) & yes it is never too late !!

     

    Best to u & yours in '14
    2 Jan, 06:22 PM Reply Like
  • Same to you F&G, may we have another profitable 2014, full of happiness & good health too.

     

    Sometimes I need to contain my enthusiasm, as others (like my own brother) didn't do so well in 2013. Their fears kept them out of the market, a real shame.

     

    (V) is one of my best stocks, up just over 20% - thanks to you I took the plunge & bought it after thinking about it for months. (AMBA) is up 52.5 % (GALE) is up 14.68%. I posted about them when I bought them on IT's blog. Both of these stocks are up huge, I'm actually late to the party. (LVS) up over 40%, (MCK) up 55 % and (SBUX) up over 20%. Naturally there are a some stinkers. (MCD) has been disappointing. Decided to be patient with (MCD) and a few others.

     

    I am trying to figure out how well my portfolios did in 2013. The best way for me is to look at the balance 12/31/2012 and compare that to 12/31/2013. Problem was, I was selling all the bonds & mutual funds, and then slowly putting the money into individual stocks. So overall, I'm up about 21%. Not the huge 30% for the S&P, or the 32% that Buffett is up….but looking back, I'm so glad I changed over. Still have some cash, for new opportunities. Dividends keep rolling in too.

     

    I'm not going to worry too much about the short term. Steady as we go, lower market prices mean we can continue to accumulate more at a lower price. This is great for DGI investors, more shares = more dividends!
    2 Jan, 11:35 PM Reply Like
  • Author’s reply » Blue,

     

    (V) has been a real nice performer,, It may be time to take some profits and then get back in at lower price , however if u have a LT horizon in that one i think we can see $240-250...

     

    (LVS) - u may be late but i think that has plenty to go -- they are operating on all cylinders with their results in macau & Singapore.

     

    not familiar with (AMBA) & (GALE) although I have seen some positive stuff here on GALE since i saw your purchase . I have two spec small position plays in 2 biotech companies (MDGN) - plenty of insider buying there and (ARIA) ... These biotechs can be homeruns or strikeouts so i don't go "all in" on any of them

     

    (MCD) hasn't performed , but the div keeps is solid and I can see increases in that down the road..

     

    (SBUX) one i missed , but its a solid story..

     

    Nothing wrong with your returns ,, many did much worse.. and your div strategy is great ...

     

    Keep up the good work !!
    3 Jan, 08:45 AM Reply Like
  • F&G yesterday was a "buy" day, sorry I didn't pull the trigger on some stocks on my watch list. I'm eyeing (INTC) (GE) (WFM) & have to check the list because I can't remember them all ; )

     

    Should have added to (BAC) (KKR) (BX) (DE) and some others. Sometime I just buy 10 shares. Or like 1 share of (AAPL). My trades are free as long as I don't go over the limit.

     

    (BA) is another miss for me. Been watching it for many months, trying to find an entry point. They have billions of orders in the pipeline, (BA) is set for the next decade at least. Darn stock just keeps going higher. Might have to just go ahead & jump in, maybe 25 shares. Then add to the position over time. That's one that it was a mistake to not just buy it.

     

    (LVS) has been a winner for me for several years now. I first bought it when it was dirt cheap (under $5), in my old investment portfolio at Ameriprise. Since consolidating everything at Merrill Lynch Edge, I bought (LVS) back in early Feb. in my husband's IRA account. It's one of those stocks that will never be sold, unless the company starts going kaput. But your are right, taking profits from time to time is smart. Learned that with the (KKD)'s!

     

    Now my husband thinks we need to go back & open an account in another brokerage. Seems that you can't buy the same stock across accounts. I was buying & selling nugt/dust in 2 accounts, his IRA and our joint investment portfolio. This is not allowed? Apparently not. I hope I don't have to do jail time for this. At one point, I triggered the "wash sale" rule because if you sell a stock at a loss, then buy it back in less than 30 days, you can't take the loss on your taxes. All these rules….who knew!

     

    What the heck is going on with (AAPL)? Can't believe it's down again today. If it goes down more, I might buy a few more shares to lower my cost. Long term, I have great expectations for (AAPL) but looks like we will see some more pain before gains. Arghhh! Just checked "Market Currents" on SA; (AAPL) was downgraded by an analyst at Wells.

     

    Happy investing!!
    3 Jan, 10:41 AM Reply Like
  • Author’s reply » Blue,
    (AAPL) - not sure why the weakness, maybe as u pointed out the Wells downgrade.. anyway it fast approaching its 50 day MA and IMO it can be picked up right here .. I believe many are undersetimating the china mobile deal , the expectations are very low .
    3 Jan, 10:51 AM Reply Like
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