Below the dirt.
Because so many things are subject to interpretation and subjective analysis, it is comforting to stumble across some data which might inexorably lead to only one conclusion, like gravity for example.
Objective quantitative data derived from current market studies indicates a kind of bullish extreme, which in year’s past has produced a similar corroborative negative response. Whether we differ on which/what events might initiate a negative response, let us agree at a minimum that it was highly more probable, and beneficial, to put cash to work in 2009 at the bottom of the market than it is to do so today. As market valuations bunch up at the top, many stocks have seen their likely near-term peaks.
Because hindsight is always 20/20, might we one day look back at today’s price peaks and wonder if we missed a near-certitude that corrections always imply? Once the selling starts, it’s too late to pick and choose, or leave the mania open for subjective review.
This is not meant to say that the bull is over or that I no longer favor equities. Instead, it is an assertion derived from math modeling and statistics that the odds were greater in our favor for capital gains before the bull run began than as it nears a statistical peak. Rather, I believe it is likely to see some sort of short term cyclical capitulation in global markets which then recalibrates the odds back in our favor. With 3 aces already on the table, the probability of drawing another from an already stacked deck diminishes significantly. I favor equities in the long term, but I am reticent to go all in at the top.
In favor.
Of course, one’s interpretation depends upon your cash reserves and your investment timeline. There is always something to buy, but the selection becomes depleted as many equities run ahead to new highs. In fact, as the menu diminishes, many investors become too aggressive, trying to make that one final gambit.
As markets extend near term, I try to rely upon profit-taking and asset rebalancing to mitigate any potential drawdown to portfolios. When probability integers move more in my favor, I typically deploy cash into opportunity. Right now, the stochastic integers (relative strength) have not moved off of a danger signal, so I remain cautious.
Markets are fluid. As I said earlier, there is always something to buy. The intermediate advance (5 years) has raised the valuation of many equities and sectors, most notably the Industrials, Cyclicals, and Technology. If there are any sectors lagging the trend, it might be Basic Materials and Energy. The case can always be made to “go long”, but few advisors will warn you when risk outweighs opportunity.
Some might conclude from the preceding paragraphs that portfolio managers operate under a “restrained schizophrenia”, go long, sell, buy? Well, when one employs a successful discipline, one is always as positive as one might be about the outcome, but realistically cautious about negative consequences. Kind of like playing golf…see the target, avoid the obstacles.
A clear cut signal to be cautious is when everybody else gets exuberantly positive, as we’re modestly seeing now.
Respectfully, I just don’t think its time to follow the trend, short-term, and place all my markers on black. Study the statistics as we near the end of the year, and muster as much patience for the longer view as you can.
Scotty C. George
(212) 624-1147
The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and it accuracy cannot be guaranteed. It is intended for private informational purposes only. Any opinions expressed are subject to change without notice. Du Pasquier Asset Management and its affiliated companies and/or individuals may from time to time own or have positions in the securities or contrary to the recommendation discussed herein.
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