Not much has changed our
outlook since last week’s alert. Although the week was constructive and
positive from a performance point of view, the longer term outlook still looks
questionable. Although in the short-term there are buying opportunities,
the market still looks broken.
Leading stocks have broken down and continue to underperform
the larger, more stable stocks. They need more time to warrant an
investment. The larger, safer stocks are acting well, mostly moving
sideways instead of declining in value, showing a clear ‘flight to safety’
approach by the institutional investors.
The smaller cap, more risky stocks topped in early march and
have been declining ever since, with the Nasdaq down roughly 10% from the top
nearly 2 months ago. Leaders are supposed to lead, and the current
risk-averse nature will not propel the market to new highs over the long run
until this occurs.
Looking over history, there has never been a time where the
market has moved on to new sustainable highs without the smaller caps leading
the way. We could get to new high ground, but in order for it to hold …
to be sustainable, we need to see these riskier leading stocks acting well and leading
again. Bottom line, the large investors need to be interested in
investing in the entire market, not just in the safe companies
for a long term rise to occur. For now, this is just not happening, so a
defensive posture still makes sense.
Typically mild corrections last no more than six weeks, so
we technically could be at the bottom now, and will shortly head back up, but
the jury is still out for now … until we see a decent inflow of funds, I see no
conclusive evidence that the worst is behind us.
As you already know, all of our strategies moved fully to
cash a few weeks ago, so we have nothing to worry about if the market continues
down. We will continue to monitor the situation very closely and if
things improve we’ll quickly be back in the market.
Hope you have a wonderful and safe weekend.
Respectfully,
Randall Mauro
Resnn Investments, LLC
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