market folly

Raymond James' Chief Investment Strategist Jeff Saut is out with his weekly missive and there's honestly not much new from him in terms of commentary. Last week, we covered how Jeff Saut was decisively cautious and his stance stands seemingly unchanged this time around. While he still advocates caution, he notes that such extreme pessimism can often be seen as a contrarian signal. As such, it would not surprise him to see a rally as stocks have been compressed on a short-term basis.

Of the negative signs, Saut cites:

- Dow Theory sell signal
- His proprietary trading indicator flashing 'sell' (for the first time since December 2007)
- Negative readings on the monthly stochastic indicator
- Downside violation of the 12-month moving average in stocks (most stocks have broken 'triple-bottoms')
- A death cross (where the 50 day moving average crosses below the 200 day moving average)

You can't really argue with the fact that all of those indicators are indeed quite ominous. Saut notes that as of the month of June of the asset classes he follows, only gold, silver, fixed income and the Japanese yen were higher for the month and year-to-date. It's no coincidence that these are often areas where investors flee to safety when volatility ramps up and uncertainty reigns. A few weeks back, the Raymond James strategist argued that the market was in a bottoming process. However, as the negative indicators began to pile on, he was quick to adapt to the change in trend and advocated caution. Saut presumably has a portion of his accounts sitting in cash given his stance and the fact that he removed market hedges into the turmoil.

In summation, Saut believes that the first duty of investors at this point should be to protect capital (and in particular the gains from the March 2009 lows). At the same token, he would not be surprised to see a rally (at least in the near-term) given the abounding pessimism. Embedded below is Jeff Saut's weekly investment strategy publication:



You can download a .pdf copy here.

If you haven't already, definitely read Saut's commentary from last week where he was decisively cautious as it is much more in-depth than this week's note. And for more recent market commentary, we recently highlighted Crispin Odey's market outlook from hedge fund Odey Asset Management which is worth examining.