So far, the market has held up in what has traditionally been a challenging month. The ability to do this under current conditions speaks to an underlying strength that continues to fuel a rally. This type of grinding higher is indicative of an atmosphere that is called “frustrated shorts” and can last a long time. This term refers to investors actively betting the market will go down because of various reasons and, because it won’t do so, they must continue to “cover” their bets by buying back their short positions, thus providing further buying power for the rally. What generally happens at the end of this condition is a big, sharp, rally that is caused by a “give up” buying frenzy from the shorts to close all their positions. Ironically, this is how some market tops are formed, because this condition has artificially propped up the market, and once it is gone, the true market fundamentals take over.
Our indicators place us in a neutral position short-term, but our long-term forecast has not changed in that we still expect a decline within the next 3-6 months. The markets (S&P 500, Dow Industrials and NASAQ) look like they want to make a series of nominal new highs near-term but if significant demand doesn’t come along soon this will be short-lived. The transports, mid and small-cap indexes are all in downtrends far away from new highs. These indexes are often the first to show weakness before a decline and they have done so to date. In this position, the only way to effectively manage portfolios is to evaluate each investment one by one. The old saying “it is a market of stocks, not a stock market” is particularly relevant here. If we are vigilant about protecting profits when long term trends and support levels are broken, the market will lead us to do the right thing, and that is exactly what we intend on doing.
Please call with any questions or concerns.
Gary and Dianne
This report is provided as a general market overview and should not be considered investment or tax advice or predictive of any future market performance.
Any security mentioned in this report may not be suitable for all investors. No investment mentioned in this newsletter constitutes a recommendation to buy, sell or hold a particular investment. Such recommendations can only be made on an individual basis after an assessment of an individual investor’s risk tolerance and personal circumstances. Past performance of any investment mentioned is not a guarantee of future performance. Statements regarding the investment concerns and merits of any company and fair market value computations are strictly the opinion of Marin Group. Employees of Marin Group and Marin Group clients may have positions and effect transactions in the securities of the issuers mentioned herein.