Jeff Saut’s latest note highlights his near-term cautious perspective and long-term bullishness. This is an outlook I agree with at the moment. Saut elaborates on his thinking:
And take a “breather” indeed with the S&P 500 (SPX/1319.88) surrendering 3.7% from the previous Friday’s intra-day high (1344.07) into last Thursday’s intra-day low (1294.26) before firming on Friday emboldened by news Saudi Arabia would step up production to plug any crude oil shortfall. Now call me cynical, but I doubt the Saudis have the capacity to accomplish their pledge and therefore am also skeptical of Friday’s rally. Inasmuch, I think what we have seen is just the opening salvo in a correction that will likely be in the 5% to 10% range before ending. Reinforcing that sense, the recent stock “high” was accompanied by the most bullish stock sentiment since the DJIA’s peak in October 2007 (69% “Bulls” according to Market Vane); as well, the Volatility Index (VIX/19.22) recorded its lowest reading since the summer of 2007 (read: too much complacency). Ladies and gentlemen, it is rare to see those kind of extreme readings worked off in a mere three sessions. So yeah, I believe the correction has more to run, yet I continue to think it is a mistake to become too bearish.
Consistent with that strategy, I am going to begin committing some of the cash raised over the past eight weeks back into stocks, preferably during bouts of weakness.
Last Tuesday was a 90% Downside Day whereby 90% of the total points, and total volume, was on the downside. It was the second 90% Downside Day of the year; and, we almost had a third as January 28th came within 0.05% of qualifying. History shows that such Downside Days are quickly followed by a rally attempt before the short-term correction resumes. Thus it should not be assumed Friday’s Fling ended the correction. In fact, under the surface Friday’s action didn’t look all that strong. This does not mean you should “dump” stocks here. The time to raise cash was over the past eight weeks, not now. That said, by my pencil the intermediate trend of the stock market is “up,” and therefore it is an opportune time to consider purchase of select stocks on your “watch list,” preferably during pullbacks. As the keen-sighted folks at Bespoke observe (as paraphrased by me): 1) the big stocks in the S&P 500 have held up better than the smaller names; 2) stocks with the best valuations have held up better than ones with high P/E multiples; 3) stocks with high dividends have outperformed; 4) stocks with high short interest have done worse than low shorted stocks; 5) stocks with low institutional ownership have outperformed; and 6) stocks with high international revenues have underperformed domestic names.
Source: Raymond James
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.