I’ve been telling our clients that the expected volatility leading into the debt ceiling decision would likely be the trigger insofar as spending the cash allocations I’ve been holding. So far we’ve deployed less than half of our cash on market dips in the past 2 weeks. I expect to spend most, although perhaps not all, of my remaining cash over the coming week on any pullbacks.
My fundamental analysis associate Craig Aucoin and I have been a bit more focused on individual stocks than usual. Typically, our equity model holds broad market and sector ETFs and individual stocks split more or less evenly. For this years “best 6 months” seasonal play, however, we’re not quite so convinced that broad markets or even broad sector plays will offer the most upside. That’s because, although the US market in particular certainly looks to be entrenched in a bull market, it’s also looking like there may be some rotation happening as the prior leaders start to take a breather. Divergences in various momentum studies such as MACD suggest that the former leaders, which tend to hold the highest capitalization within the indices most of us watch, are losing steam.
Breadth is also diverging. Note that on the cumulative Advance Decline line we see flat peaks where the S&P500 made higher highs.
So where to hunt? I mentioned Europe and the MSCI EAFE charts a couple of weeks ago as one place to play the broad indexes. Here’s the link: http://www.valuetrend.ca/?p=2487
Beyond that, certain stocks such as Texas Instruments TXN-N and AIG-N are breaking out (we own TXN). We also bought CAE-T on a large breakout pattern recently too.
The day of the index investor may be ending, at least for the balance of this leg in the bull market. I’m convinced that a healthy 20% correction (bear) may visit us later next year. I’ll blog on my reasons for that potential soon. Meanwhile, although I do expect markets to continue rising over the next 6 months or so, I believe the upside for the indexes will be far less lucrative than they have been. Thus, my advice is to pick good stocks with sound technical and fundamental profiles going forward.