Very seldom do we see six straight weeks of market weakness, especially without a notable bounce in the indices. This has caused many to question the validity of the bull market and ponder the possibility of the commencement of a full blown bear market.
In my view, odds remain high – despite the pain – that we remain in a bull market and we’re experiencing a normal garden variety pullback. We remain just 6% off the high for the S&P 500 while the Russell 2000 has retreated approximately 8% while that may not sound like much its enough to place our short, intermediate and long term sentiment indicators have moved into positive territory for the first time since late last Summer. Corporate earnings growth remains very strong and unlike what we’d expect to see if entering a recession. While the risk exists that weaker than expected economic reports could result in disappointing earnings preannoucements, any rush to presume this risk could be premature.
While the economy may be going through the proverbial soft patch with intermediate term Treasuries moving below 3% yield the primary causes appear to be resulting from the flood in the Midwest, rise in the dollar, Greece/Euro, earthquake in Japan and the serious move higher in oil prices. While the floods and earthquake are temporary in nature, the rise in oil is potentially reaching the point of demand destruction. However, I do believe that these issues are now absorbed into the prices of most equities and bonds.
Risks remain though and to the shock of many, the US has been a much better place to invest your money than the beloved Emerging Markets. Inverted yield curves are showing up in many countries: Greece, Ireland, Portugal, India and Brazil. Historically speaking, inversions almost always lead to recessions.
During this period of weakness we’ve sold several holdings that had fallen in our ranking system and have begun to add new names as I believe that the odds are growing that 1250 on the S&P will hold.
Deletions:
PKOH
NTL
CPWM
XIDE
GKK
Additions:
COOL
CMT
GKK (buying back in at lower price)
IEP
ITWG
HIT
As always be careful out there.
Brad Pappas
Long all mentioned.