market folly

"Buy on the cannons and sell on the trumpets." Jeffrey Saut, chief investment strategist at Raymond James focuses on this phrase in his latest weekly market commentary. He notes that investors were buying the first week of March this year and the ensuing rally has proceeded until the present. He then goes on to highlight a possible outlier event in the recent employment report. Last week the market gapped higher but then gave back gains. Market weakness is obviously evident in situations where a market rises substantially in the morning, only to leak out those gains over the course of the day.

Saut was trying to evaluate as to whether or not this represented a one-day reversal event and whether it meant more weakness was set to come. After all, he points to how certain economic indicators have shown strength one month, only to show weakness again the next. So, it seems the cycle plays on. This was interesting seeing how his commentary from last week focused on how dollar weakness will fuel stocks higher. It seems as if he is looking for reasons to challenge his previous conclusions. And, in a market and economic environment where things are constantly changing, it makes sense to re-examine theses and to constantly evaluate the other side of the argument.

Saut ends his note by laying out some interesting datapoints. He writes, "Since November 16th the S&P 500 (SPX/1105.98) has had a difficult time attempting to rally above the 1115 level. Interestingly, that level represents a 50% recovery of the SPX’s price decline from October 2007 (1554) into its March 2009 low (676). It also approximates the downtrend line formed by connecting the S&P’s October 2007 peak with the peak that occurred in May 2008." And while the majority of his commentary this week focuses on whether or not we should expect more weakness, he actually falls back on his conclusions from the past two weeks that the market upside will continue into year-end as managers are still underinvested compared to their typical 70-75% net long levels.

Embedded below is the weekly investment strategy from Jeff Saut at Raymond James in its entirety. Email readers come to the blog to view the document:




You can download the .pdf here. While Saut continues to examine the market on a weekly basis, it appears as if he's searching for reasons for the market not to rally. However, as per his notes last week, he still arrives at the conclusion that we'll end the year higher. For more thoughts from Saut, you can check out his commentary from last week as well.