A Garden Variety Pullback

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.




GKK (buying back in at lower price)


As always be careful out there.

Brad Pappas

Long all mentioned.

“Does Past Performance Matter”

Intriguing article by Standard and Poor’s: “Does Past Performance Matter?”

Spent the morning accompanying my son on the gorgeous campus of U.C. Boulder for freshman orientation.   The contrast between his orientation and my own first days at Northeastern couldn’t be greater….all we ever got was our course schedule and a map along with the Dickensesque: “look to the left, look to the right to see who’ll be gone in 4 years”

Is now the time to refocus on Emerging Markets with the potential weakness in the US Dollar?   The USD appears to be rolling over which bodes well for Emerging Markets who thrive on a weak dollar.   They’ve been dormant for at least six months so we might see a move shortly.  More on our holdings later……….

In addition to the dollar rolling over the ECRI leading weekly indicator has rolled over………and not just for a rub on the tummy.   At its present value the ECRI has predicted 5 recessions and given two false alerts.   Our favorite research outfits ISI and Ned Davis are calling for economic softness but not a double dip recession.