CI Outlook - Archives

February 2013

January was great confirmation of the markets technical strength.  Most of the gain came in the first week and the market held in the face of very mixed economic news.  While February is off to a rocky start we still believe the underlying trend is higher.  The Dow Jones Transportation Average did hit a new all-time high last month and the industrials are not far behind. A new high in the industrials would trigger a Dow Theory buy signal.  And such signals are preludes to long term secular bull markets.  The chart on the back page shows those secular bull markets from 1948-1966 and 1982-1999.  The intervening periods of consolidation are highlighted in gray.  A Dow Theory signal now would break the market out of the current 13 year consolidation range and indicate the start of another secular move higher.  While we have believed for some time a breakout was imminent we have waited for the market to confirm that belief. 

The theory is trend following and not designed to signal market tops or bottoms.  Rather it indicates changes in the very long term trend.   Historically these changes happen when they are least expected by the wide majority of investors.  At the beginning of both prior moves very few people believed in the stock market.  Rather investors read the news and shunned stocks.  In 1948 investor’s spurned stocks believing that with WWII over the economy would surely slip back into recession or depression.  In 1982 long years of war and inflation had destroyed investment confidence.  Investors avoided equities as national publications heralded the death of equities.  Perhaps todays excuse will be the US deficit or the trouble in the Eurozone. 

Short term the day to day movement of the market will remain volatile and unpredictable.  But we believe the very long term trend of the market is turning higher.  Rather than remain defensive and income oriented we will be concentrating our research on investment ideas which are growth oriented in nature.  If these ideas are appropriate for your investment goals we will be including them in your portfolio.

We believe this is the start of a very large change in market psychology.  If you would like to discuss our thinking please call and we can either talk or schedule a time to meet and review your portfolio in greater detail.

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