We have seen a big rally in U.S. stocks and that is what we are seeing still yet! With all the whining and crying and doomsday scenario gurus are selling with their newsletters, the markets have risen to new all-time highs. That is why we are trend followers. We listen to the markets foremost. The market is our boss.
Even though the U.S. stock market is very extended in price since moving up these last few months, the trend seems to be getting stronger in our opinion. Our attempts at testing the short side has yielded feeble results at best.
So in our last report we said we would fade the strong up moves in the markets but also look for stock breakouts to stay with our trend following philosophy. We try to catch the beginning of a trend reversal (which in this case would be a downward move) but we do not consider ourselves ever more right than the markets–and so we cut losses quickly and attempt to ride the current waves.
The markets are in all time high territory and so we expect a big improvement in the economy in order for this bull market to continue. This is what we believe the markets are telling us, not necessarily what the news is telling us though.
A correction is inevitable and so we believe we just have to keep our eyes on stocks that have charts that are not too extended if we are to initiate any large positions.
We also feel that there has to be a gradual comeback at some point for the commodity based stocks like steel, copper and coal for the market to really heat up. If these basic materials stand pat or gently glide down in price we believe we will be in great shape. If they fall hard we would say that the world economy has fallen into a dangerous deflationary spiral. If they rise hard, we believe inflation can take the breath out of the markets.
Right now we are looking for the sectors that are causing the markets to rise into all time highs. There are some really well known stocks like United Parcel Service (UPS), Target (TGT), Wal-Mart (WMT), Cree (CREE) and Google (GOOG) lighting up the new highs lists, so we are looking for emerging companies that show the potential to follow in their footsteps.
We have shared enthusiasm for this rally. However, as always we are very careful and ready for the potential corrective move or reversal to come.
The investments discussed are held in client accounts as of April 30 , 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
