“Who is left to buy” is a rhetorical question of course. But for those not understanding the implications of rampant bullish sentiment, its a quick and easy explanation.
Investor Sentiment is an inverse indicator. The greater the positive sentiment the higher the risk and odds of a market pullback. Peaks in sentiment don’t have to mean the rally will come to an end but it usually implies there will be at least a pause. And, more frequently a sell-off great enough to instill fear back into the market place. As the saying goes: “If this was easy, everyone could do it.”
Adding to the list of extreme sentiment indicators is the National Association of Active Investment Managers. According to Sentimentrader.com the average manager is now 94.6% exposed to stocks along with a very low standard deviation which means there’s a whole lotta group think goin on.
There there is the Investors Intelligence (add joke here) Bearish Percentage: 15% That is a level only achieved three times since since 2008 and in each case there was a moderate pullback.
Background music: Just chillin by Polished Chrome
Earlier this week we went on a road trip to check off a Bucket List item that after living in Colorado for 20 years and a deep interest in 19th century western history: The Little Bighorn. While Custer’s defeat in Southern Montana is not the black hole conspiracy mystery such as the JFK assassination, it remains so full of unanswered questions. One of the many things remarkable about the Little Bighorn is the placement of markers on the spots where U.S. cavalrymen fell. The various Indian nations are still in the process of placing their own markers where their warriors fell as well. These markers give you a really good idea of happenings of those fateful hours.
Happenings from last week and looking to the week ahead:
Our client portfolios exceeded the return of the S&P 500 by a hefty 2.7% last week due largely to the sale of National Technical Systems which surged 38% on the news of its sale for $23 a share.
While its possible we may currently be in for a mild market pullback the underlying economic fundamentals still support our full equity exposure.
Bob Diehl of nospinforecast.com who developed the Aggregate Spread is giving us an all-clear signal in the search for an impending recession. His method looks 9 months into the future and is giving a green light up to at least April 2014.
In other macro economic news recessionalert.com is giving an all-clear signal as well. Dwaine Van Vuuren of recessionalert (RA) has developed a very intriguing stock market health model that incorporates economic data and stock market technical statistics. I expect I’ll be tinkering with his models shortly and investigating how well the synergy exists between his work and our own.
Green Investing Alert: Our proprietary quantitative ranking systems have identified a stock long enamored by the socially responsible / green investing community: Gaiam
Gaiam is a retailer that caters to the yoga/wellness market. What may be the catalyst going forward is the sale of their stake in Real Goods Solar which is allowing Gaiam to add a significant amount of cash to their balance sheet.
We have no positions in Gaiam at the time of this post.
This may be premature but I’ve noticed that our portfolios have been outperforming for the past three days. That may not sound like much but I believe its an indication that the breadth of the market is improving and that the major indices are masking underlying strength.
When underlying market strength is weak, the major indexes that you can own via ETF’s or Index mutual funds tend to do relatively well. However, when underlying strength is weak there is a strong tendency for individual equities and small caps to outperform. This could be the case now, time will tell. It has been 10 months since we last outperformed so the tide may be turning.
We continue to hold Appliance Recycling Centers of America ARCI Green Plains Renewable Energy GPRE and have a small position in Perma Fix Environmental Solutions PESI.
Severe sell off in solar play First Solar FSLR a former high flying darling of the solar energy industry. FSLR came out with a statement that 2012 earnings will be roughly half of analysts expectations. We have no position in FSLR but I must say the price is getting interesting.
FSLR share price is $33.90
The balance sheet is solid: Book value is $46 which includes $8 in cash and the equivalent of approximately $7 in debt.
But the market cap is now below revenues, which indicates very good value.
Its probably too early to buy as the stock needs to stabilize and the source of the earnings weakness must be determined. Stating again for the umpteenth time: Europe is the primary source of Alt Energy revenues and Europe is cutting back severely through austerity programs to curb their debt. Alt Energy will be sacrificed in the meantime as for most countries its a discretionary expense.
Long ARCI, PESI and GPRE
Top of the list for a Green company – ARCI
Micro Cap stock with all the ingredients we love to see:
Quarterly Earnings Growth: 30%
12 mos. Trailing EPS Growth: 87%
Earnings Yield: 10.7%
With better than average trading momentum
We are long ARCI for client accounts
Evergreen Solar bankrupt….Solyndra bankrupt….Was it possible to see the collapse in the Solar stocks coming? Yes it was and I’ve mentioned this frequently for better for the better part of three years. It all boils down to the fact that you don’t want to own investments that rely heavily on government subsidies for their survival. You especially don’t want to own those investments during periods of financial austerity. The solar stock industry relies heavily upon subsidies from the US, China and Europe, with all three in either recession/depression or on the brink this outcome was inevitable.
For as long as I’ve been practicing SRI (over 20 years) I’ve been uniform and adamant that investing proactively is contradictory to effective long term investing. Investing including Socially Responsible Investing is about handling risk intelligently and dispensing with the rose colored glasses. Eventually every investment will turn against you and how you decide to cope with this inevitable turn will largely dictate the degree of your long term success. Being emotionally married to an investment is a sure and quick way to the poorhouse, you’d have been much better off supporting the company as a consumer not an investor.
Is there a survivor and a longer term winner in the bunch? Probably First Solar
Investing in Solar or Alternative energy now is nothing more than a spectator sport for the time being.