David R. Fried

whomever or whatever you want.  The fact is that markets go up and come down with regularity.  Analysts have given more than a few reasons for the current market correction.  One popular reason the that the market is worried about President Obama’s choice of a replacement for Fed Chairman Ben Bernanke.  Supposedly the market is worried that it will be Larry Summers.  Larry is absolutely the smartest g Continue Reading…

Most investors spend a lot of time wondering and worrying about the direction the market will go in tomorrow.  The energy is misplaced.  What the investor needs to now is what to do if the market moves in either direction.  The chart below shows that the market has broken a long uptrend that added 26% to the S&P near it’s highest point. The discerning eye will note that it broke this uptrend 6 weeks ago only to resume it shortly.   It is summer which is often weak for the markets and after a long run up many investors are expecting a correction and thinking that this decline will have follow through.  We may get it or we may not.  After all there are bright spots that would support a strong market such as; July ISM was 55.4, up from the prior reading of 50.9; The Philadelphia Fed report showed a reading of 19.8 up from 12.5 in June…  So what is the answer to the unknowable?  The answer is to know what to do in either situation.  If you own a stock that is continuing to go up even though the market may be declining then let it go up and use trailing stop losses.  If your stocks are declining you can have stops in place to take you out of the position.  This way you are prepared for whatever the market brings.

https://stockcharts.com/c-sc/sc?s=$SPX&p=D&yr=0&mn=10&dy=0&i=p82814230675&a=203404330&r=1376601304675

Enjoy your summer and feel free to call or contact me with any questions.

We publish a weekly sentiment reading in The Buyback Letter (www.buybackletter.com). Last week sentiment registered a reading of 216.00 a negative reading. We are now in the May-October time period (historically the May-October time frame has underperformed the November-April period). We use the sentiment indicator as a guide for investing new funds into the market, not as a timing tool to exit or double up on stocks. When sentiment tells us the market may be at or near a low, we consider that a buying opportunity for the investment of new money. Conversely, when sentiment indicates a market peak, we will take a more cautious approach to the investment of new money. Our sentiment indicator is an inverse indicator, so the lower the score is, the higher the reading. To get the score, we add the total bullish percentage readings of Investors Intelligence (contact tel. #914-632-0422), Consensus Index (816-373-3700), AAII Index (312-280-0170) and Market Vane (626-395-7436) and average this figure for the week. An average reading of more than 200 is considered negative and warrants a cautious approach. Readings of 240 or more have signaled market highs over the past few years, while readings of 130 or so have shown market lows for the past few years.

This reading, while not the most extreme that we have recorded, coincides with the release below from Reuters which addresses the record inflows into ETFs and stock market funds last month. The two data points would indicate some near term caution may be appropriate for the market.

Egypt and other recent geopolitical news aside, this year is already shaping up to reveal what looks like a nicely recovering economy, with strong indications that the economy will grow at its fastest pace in eight years during 2011.

Job growth is expected to double last year’s mark (granted a low high bar), leading to more income and spending, a cut in the Social Security tax should give an additional goose, and banks are loosening up business lending standards.

Late January’s advance reading of fourth quarter GDP showed it expanded at an annual rate of 3.2% — the third best quarterly showing of the recovery to date, revealing six quarters in a row of growth. We would not be surprised to see a GDP growth of 4% this year.

And last month’s official results from the Federal Reserve’s survey of economic conditions revealed the U.S. economy ended 2010 on an encouraging note, with all parts of the country showing improvements – factories produced more, shoppers spent more and companies hired more.

This week Home Depot said that they will be hiring 60,000 temporary employees for the next few months to handle the spring season which is their busiest time of the year. Granted temporary jobs are not permanent jobs. However, it has been a long time since we have seen that in the headlines!

Stocks have been rebounding and investors who stayed in the market have seen some of their wealth restored. In fact, in January, stocks had climbed to new 2-year highs, with the Wilshire 5000 at a 2 1/2-year high. The broad market had nearly doubled since the March 2009 low. S&P 500 earnings for 2010 are currently expected to be $82.18, which would represent growth of 42.6% from 2009. Current estimates expect 2011 S&P 500 earnings to be $95.06, which would be a new all-time high if it occurred. Based on the current outlook, S&P 500 earnings might reach a new record as soon as mid 2011.

All of this — more jobs, more income, more spending by consumers and businesses – is bullish for the economy. And it is a good landscape in which to be an investor.

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