Market action was a little disappointing last week. We thought a small rally was in order, but instead Friday’s eight-point drop on the S&P put the week at a slight loss. It seems investors are a little more skittish than we believed.
Nonetheless, our overall viewpoint remains unchanged. Stocks have more upside potential over the short term than downside.
Paradoxically, market behavior in recent weeks reminds us most of 1981-82. At that time, a bear market occurred in large cap stocks, while many other groups (particularly unweighted averages and the broad market) saw essentially flat returns. This was followed by an explosive rally that began in August 1982.
Here is what we expect this time around …
MR. MARKET TAKES A HOLIDAY
On the upside, today’s market features a notable lack of selling. The low specialist shorting numbers confirm that the smart money does not see a major decline in the offing. Of course, lack of selling pressure does not mean strong buying pressure. In fact, there seems to be no pressure one way or the other. It’s as though Mr. Market is taking a summer holiday. He has stretched out in the sun on a tropical beach and has let go his anxieties so completely that he doesn’t have the energy to either go down to the water for a dip or back up to the hotel for lunch.Read more...
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