The market continues to act well. Although we
technically closed up for the week, I don’t really look at the week as positive
from a performance perspective, but rather positive from a consolidation point
of view. We have sort of a resting period occurring which will lead the
way to better opportunities shortly.
Many times when the markets get out of whack (one group of
stocks performing significantly better (or worse) than the others, there comes
a point in time where the indexes eventually have to get back in sync with each
other. As you know from previous posts, the S&P500 and Dow Jones has
been basically flat to slightly down since the beginning of this year, while
the riskier Russell 2000 and Nasdaq fell pretty substantially (down 10%) over
the same time period. This divergence between the indexes eventually
needs to be dealt with, and this is what I see occurring now.
Over the past 2-3 weeks, we have seen the stocks in the
S&P and Dow make very small gains, while the Russell 2000 and Nasdaq stocks
have been on a tear trying to catch up. So, we have the larger caps
basically waiting, while the smaller caps are quickly trying to come
back. This is very productive behavior.
What I expect to happen from here, is that we will first
need a very shallow correction, but not anything to be afraid of. Just a
buying opportunity. Basically all the data points look very strong, but
we have quite simply moved up too much too quickly in the smaller cap stocks
and we just need a short time to pause and build confidence again. There
are many buyers that still want to get into the riskier assets, but are waiting
for a pullback since the prices have gotten a bit elevated at the moment.
We have what is called an “overbought” situation, and we simply need to pullback
to ease this tension.
Once this occurs, (which I expect to start next week and
last 1-2 weeks), things look quite positive from here (barring any
unknowns). I expect over the next month or two that we will be into new
high ground on all indexes.
Bottom line, it appears we are seeing very positive
consolidation occurring in preparation for a longer term move up. Our
short term indicators are looking a bit stretched and indicate a mild pullback
is imminent, but medium and longer term … everything still looks honky dory.
For now, we stay fully invested
with little cause for concern.
Hope you have a wonderful and
safe weekend.
Respectfully,
Randall Mauro
Resnn Investments, LLC
On a personal note, if you
haven’t had a chance to check out my book, please check out the “look inside”
feature at Amazon here … http://www.amazon.com/gp/product/1499245823/ref=as_li_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=1499245823&linkCode=as2&tag=randmaur-20&linkId=NFV5VUZYKSLNVXMS
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