Through this blog, my BNN appearances, and my writings within the Investors Digest and Moneyletter publications, I strongly suggested 2 months ago that markets would rally. Going against the consensus view, which I was certainly doing at the time, usually makes us feel uneasy and uncertain about our strategy. Taking a contrarian stance when backed by evidence, however, can pay off. It certainly did this time—certainly more so than following the crowd who were net short or in cash at that time.
Since my original bullish prognostication the S&P500 has breached 1400. My target was for the S&P to reach either 1420 (recent highpoint) or 1500 (decade-long resistance). It is my opinion that the market is now close enough to target #1 (1420) to begin profit taking. The realization of the technical target mentioned above and the seasonal influences of September/October create a risk/reward environment that is unfavorable going forward. Please note that my caveat to this will be the Fed: any sign of QE3 in the coming weeks will likely push the S&P 500 to my second target of 1500.
Barring a QE3 announcement, my focus is to sell a few high beta sectors such as commodities at or before early September. I am maintaining my exposure to Canadian banks, utilities, infrastructure and higher-dividend payers. Further, I am watching for an opportunity to enter into a hedging strategy over the coming weeks. I’ll discuss this strategy in next weeks blog, and I’ll also be covering it on BNN’s MarketCall Tonight this Friday August 17th at 6pm.
I’ll also be covering my reasoning behind my very bearish prognostications for markets in 2013 on BNN. I’d encourage you to read my blog from July 24th for more information on a 5-year market cycle. The current stage within this cycle could suggest a significant decline over the next 2 years. Here’s the blog: http://www.valuetrend.ca/?p=1325
By the way–I continue to invite anyone to comment with any input that either adds or disputes the thoughts presented in this blogpost. As Red Green (aka the Canadian TV show) used to say: “We’re all in this together”!