Again … 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, albeit better than last week. Although the market has
stabilized and in fact recovered nicely so far from the decline of the past 6
weeks, we still have leading stocks severely underperforming.
In fact, the greatest gains
over the past few weeks have been in income and blue chip stocks; recent
breakouts include Procter&Gamble, 3M, Exxon Mobil, Wal-Mart Stores and
tobacco firm Lorillard. All incredibly strong companies, but certainly
not leading stocks from a growth perspective. Clearly, investors are
still being risk averse, looking for safety over growth.
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.
As I mentioned last week, 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 might 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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