CI Outlook - Archives

November 2013

A hackneyed old Wall Street saying “There is no one more bearish than a sold out bull” is playing out this year.  It seems the prevailing sentiment all year has been to sit on cash and invest when the market pulls back.  However the pullback has not materialized.  In fact, according to our friends at Bespoke Research, the market has only remained this overbought all year long three other times since WWII.  Those years were 1954, 1958 and 1995.  In each case those years were preludes to higher markets the following year.  And in each case the very shallow dips during the year were quickly followed by higher prices.  In terms of tactics how has this played out?

First of all recognition of this pattern is why we were relatively quick to buy QQQ and EEM once they were identified as purchase candidates.  It is also why we were quick to add Pfizer after selling Merck and buy Wisdom Tree European Small Cap as soon as we finished our due diligence.  We still hold some investable cash and are actively seeking investment candidates that would be suitable for your portfolio.

Additionally, we do not feel the trend has played out.  Those investors who have been negative remain so.  In fact many are raising more cash looking for not just a pullback but a deep correction.  We recognize the extremely extended price structure of the market. A near term drop in prices would cure that.  However we remember that extended markets can go through a “correction” either in price or in time.  With the end of the year coming soon and many people still negative we believe any price decline will be short and shallow in nature.  We think the longer prices move sideways, the less likely a near-term drop in prices is.  If we are correct and the market corrects in time rather than price the end of the year rally could start before Thanksgiving and perhaps carry all the way through to Christmas.

As always we thank you for your patronage.  We would welcome the opportunity to visit and discuss your investments.  Please call if you have questions, comments or would like to set an appointment to visit in person.


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