Friday, November 22, 2013

Market Wrap - week ending 11/22/2013

Hello everyone, a nice calm week in the market.  Although volatility has increased a bit, the market spent the week acting in a very orderly manner.  On Tuesday we added to our position, going from 55% invested to 100% invested, so now we are fully in the market with no margin use.

Not much has changed in our analysis since last week, although leading stocks are starting to look a tad better than in previous weeks.  I'm still cautiously optimistic that the market will continue its’ upward direction for awhile longer.

Clearly the market is showing strong resilience, every time we start to see a break it quickly stabilizes and continues higher.

Next week is obviously Thanksgiving, which means light volume and most times sleepy trading since the big boys are taking the week off.  Yet, historically many new trends start during holiday weeks particularly this one and the upcoming one in December.  Since volume is so low during these periods, it is really easy for a large player to move the market and of course, once the market breaks free from a previous trend most other players jump in and happily follow.  So, although I expect low volume, it would not surprise me if we get a strong move in one direction or the other.

Until then, we stay invested and watch closely.  Hope you have a wonderful and safe weekend.


Randall Mauro
Resnn Investments, LLC

Our market wrap is published weekly, sent via email on Friday after the market close, with alerts sent occasionally mid-week in particularly volatile times.  To sign up for this free service, please visit our website at

Friday, November 15, 2013

Market Wrap - week ending 11/15/2013

Hello everyone, we waded back into the market this week with a 55% exposure.  Although we are still seeing a slow breakdown of quality stocks, the market reversed is sharp decline last week and moved higher at the end of this week.  A classic “fake-out” yet again. 

We have seen our share of fake-outs this year with markets sharply dropping for two to three days, then sharply reversing and moving higher.  Fake-outs are quite normal in the market, but what I don’t like here is the level of intensity in the drops.  We’ve seen a number of times this year a relatively stable quiet market, then a very volatile sharp drop which is out of character, then a sharp rise (again out of character) after which the market settles down and goes sideways for a few weeks before doing it again. 

Looking back at history, this pattern is not normal and certainly won’t continue forever.  Generally when we get a sharp one day decline of 2% or more (like we had last week), investors get really freaked out and panic and although we usually get a small bounce up from there, the bounce fails quickly.  Here we are seeing sharp drops with an immediate sharp counter bounce up. 

The behavior doesn’t make a lot of sense.  We have extreme panic one day, then extreme euphoria the next.  Makes me think the computers are running the show where the buying is literally turned off for a few days, then a switch is pulled and tons of buying occurs … OR … the market is being supported by the Federal Government, just as panic sets in they step in and start buying to calm everyone’s nerves again. 

I’m not a believer in conspiracy theories, but something out of the norm is causing this eccentric behavior in the market for sure.  So far the best course of action this year has been to just close your eyes and ignore the daily movements, a ‘Buy and Hold’ strategy, yet as we all know this type of strategy eventually bites you when there finally is a clean break and we drop 20+%, which we are obviously overdue to do.

So, although this has been a frustrating market for defensive strategies like ours, I still have no doubt that over the long run we will win out by far.  The bull market of 1999 is a great example to compare to today’s market, it mirrors the moves almost exactly, and looking at 1999 we peaked late in the year and had a massive decline that lasted 3 years afterward (in 2000, 2001 and 2002) which wiped out all the gains and then some.  I'm certainly not going to try and imply what the future holds for us here, but I do know that this forgiving, constantly rising market cannot go up forever and we still have a lot of weak underlying issues that I mentioned in last week’s email that have not been resolved.

For now we stay invested cautiously and wait for more directional clues.

Hope you have a wonderful and safe weekend.


Randall Mauro
Resnn Investments, LLC

Our market wrap is published weekly, sent via email on Friday after the market close, with alerts sent occasionally mid-week in particularly volatile times.  To sign up for this free service, please visit our website at

Friday, November 8, 2013

Market Wrap - week ending 11/8/2013

What a crazy week for the market.  The first three days was very sleepy, but yesterday and today really woke up everyone.  We started the week fully invested, and on Wednesday reduced our position to 30% invested, then today we exited fully in the middle of the day.

On Thursday we saw a dramatic drop in the market where the market finally broke out and below its’ most recent trading range.  It had been sitting very calmly for about 2 weeks with very little progress on either side, then suddenly we had an aggressive sell off.

Although yesterday caught many investors by surprise, under the surface we have been continuing to see weakness which we notated in our last few end of week emails.  This weakness caused us to reduce our exposure (to 30% invested) on Wednesday before the large drop yesterday.

Early in the week we saw a number of leading stocks continue the trend of the past few weeks .. breaking down, we also saw the continuation of larger cap DOW stocks outperforming the smaller more risky stocks.

I can say that Thursday’s decline did not surprise me … we definitely are seeing a growing negative sentiment in all stocks.  It appears that large institutions are moving their assets out of riskier smaller cap stocks and in to larger (safer) positions.  And I said last week, leading stocks are supposed to lead … and when we see them one by one fall out of favor and not able to recover, usually the larger cap stocks and indexes follow suit shortly after.

In the last two weeks we are also seeing negative market breadth.  Looking at a comparison of advancing vs. declining stocks … we see a negative divergence where fewer stocks are advancing than price would imply.  I also see the same results looking at up/down volume.  Clearly there is more volume on the selling side.

The Russell 2000 index broke key support lines this week and although they recovered those lines today they did so on weak volume.

Today’s action on the other hand, quite honestly surprised me.  With such a large break yesterday, I was surprised to see such a strong comeback.  I certainly expected a bounce up today since yesterday’s decline was so extreme (hence the reason we waited to exit the market until today instead of yesterday), but was surprised by how strong the bounce was.  With that said, leading stocks as a whole are still struggling and the pattern of larger, safer outperforming smaller company’s continues.

I really think the market is getting ready for a much larger correction, but it might not become evident for a few more weeks.  I expect to see another bounce up, and unless leading stocks recover their previous leading roles, I expect to see a sharp drop from there.

The data will lead us in or out of the market, but for now we stay in a defensive role.

Hope you have a wonderful and safe weekend.


Randall Mauro
Resnn Investments, LLC

Our market wrap is published weekly, sent via email on Friday after the market close, with alerts sent occasionally mid-week in particularly volatile times.  To sign up for this free service, please visit our website at

Friday, November 1, 2013

Is the stock market showing signs of an impending correction?

Happy November!  I hope everyone had a safe Halloween.  I hope by now everyone has come down off of their sugar high’s from the festivities.  I know in our house, today’s was much more ‘sluggish’ than normal, with the boys having little energy for anything.

Although we are clearly still in an uptrend, I am continuing to see a lot of evidence that we might be  forming a longer term top.  Although none of our indicators are showing enough weakness to act defensively as of this moment, every day our analysis shows more and more weakness.  But … what is interesting is that the process is taking a long time which is most likely indicating that the next correction that occurs will be stronger than the last few.

The reality is that we haven’t has a strong correction since April 2011 when the market dropped over 20% in 2 months.  In 2012, we had two 12+% corrections, but both recovered relatively quickly, and 2013 has seen very little downside.  Looking over history we generally have a strong correction (20% or larger) every 2 – 5 years, so we certainly could be due for one. 

We do not use seasonal or calendar based indicators in our decision process, but rather look at the data and how the stocks are acting at that particularly time … but I do think we are overdue given the complacent views right now.  In fact, all surveys of investor confidence are excessively bullish.  We have a very frothy situation right now where most investors are extremely confident that the only place for the market to go is up.  As I’ve mentioned in the past, usually when all parties feel the same way, a change is not far off. 

A few items that are causing concern for me are …

1) The most important issue is that leading stocks are continuing their 3 week long pattern of breaking down.  One by one we are seeing the 2013 leaders breaking down and losing value aggressively.  It may be obvious, but leading stocks generally ‘lead’ the market, so if they are breaking down … it usually isn’t long before the indexes follow.

2) As I’ve mentioned previously, we are continuing to see defensive sectors take on a leadership position and  outperform the smaller cap stocks.  This week was no exception with the Dow Jones index eking out a 0.29% gain for the week while the Russell 2000 small cap declined 2.13%.  if you stretch that out longer term a similar situation enfolds, over the past two weeks the Dow gained 1.4%, vs. the Russell losing 1.79%, and three weeks ago with the Dow gaining 2.5% while the Russell gaining only 0.96%. 

So, over the past three weeks we’ve seen the Russell (smaller caps) rolling over from an uptrend to a decline while the Dow spent half the time in a strong uptrend to being flat this week … as if the Dow is following the leading smaller cap stocks off the cliff…

This is normal ‘topping’ behavior where the big guys start selling their riskier investments and move their money in the more defensive larger cap stocks that generally take less of a hit in a correction.

From a technical analysis perspective we are definitely seeing more selling pressure with volume much stronger on down days and key inflection points being broken particularly in the small cap realm.  The other area of concern technically is that the majority of stocks are overextended … stretched far from their averages and like a rubber band when it stretches too far … the stocks need to snap back.  Granted, when stocks get overextended a correction doesn’t have to occur to fix the problem, time can solve the problem if the stocks sit in a healthy manner not gaining price, but also not losing.

So far this is what we are seeing with the market as a whole is holding up well with little gain, but also little loss, creating a 3 week long “Doji”.  Doji’s simply signify indecision in the market, where price does not go up or down.  There are small battles going on between the bulls and bears, but no side has won as of yet.

With that said, each week we are seeing more and more volume, meaning the battles are getting more intense.

For now, we stay invested and continue to watch closely for further signs of a large scale breakdown.  I would imagine next week will provide clarity as to the direction of the market through the end of the year.  Until then, I hope you have a wonderful and safe weekend.


Randall Mauro
Resnn Investments, LLC