TGIF March 16, 2012

March Madness or Market Madness?  Regardless, it’s an exciting time around the country.  Just as the storied annual college basketball tourney tipped off, the S&P punched through 1400 while the Nasdaq and DOW climbed back above the big round 3,000 and 13,000 levels.  They’ve never been at these levels together.  But is this Market move truly madness, or really warranted?  That is such a critical question, and will likely get answered in the coming weeks. 

 We have felt all along that 2012 would have a nice start, with a continuation from the year-end rally of 2011.  Boy has it.  We’ve seen nothing short of an 11% pop to start the year, another record, and a 30% run, pretty much unabated, from the October lows.  We definitely think the strength is warranted, but the “Madness” has come in the speed and trajectory.  The rally has come directly in the face of rising oil and gas prices which threatens consumers around the globe.  Oil has never been this high, this early in the year.  The big risks, like European credit and Geopolitics, have taken a backseat, and that’s a very good thing.  We know they still exist, but so far seem to have been managed quite effectively to the Market’s satisfaction. 

 Investor Sentiment has gotten very bullish, it’s the most bullish posture we’ve seen since 2007, which was the Top.  That said, Stocks continue to rise, and momentum is clearly with the Bulls.  We have been overbought for weeks now, but the thing is, overbought usually lasts far longer than oversold.  We have taken some defensive measures in recent weeks, by taking profits in stocks that have run.  We have been early with our defensive posture, but we can never feel bad about taking profits.  We continue to let the Market be our guide, and we must continually demonstrate patience. 

 Anything can happen in March Madness, and it’s been nothing short of exciting and stunning with this Market move in 2012.  We always have to remind ourselves, it’s a long game and this is only the beginning.  Many issues have yet to be resolved, and the Presidential election will be here sooner than you think.  Our belief stands, that this Market should continue to do well throughout the year, but as Sir Isaac Newton phrased it best “what goes up, must come down”.  For those Newton fans, his first law of motion established that objects in motion, remain in motion until an external force is applied.  Sounds very simplistic, but often times simplicity is the best frame of mind for decision making.  Currently, the Market reflects his first law, but it’s only a matter of time for a natural force to impede this vertical trajectory. 

 Have a nice weekend.  We will be back dark and early Monday morning.  We’re on it.

By: Mike Frazier

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