TGIF October 10, 2014

Investor fear and volatility are back with a vengeance. This week saw 3 consecutive 200+ point moves on the DOW, which also included the worst day in 2014 for stocks. Losses turned to gains, which were quickly erased again, as investors felt the whipsaw action. Bonds continue to rally. The DOW closed the week negative for the year. It is also 5% lower than the highs reached just 3 weeks ago.

The Market is clearly in correction mode. We planned for it, but it’s never a joy to go through. There are many forces at play contributing to the sell-off, some short-term, some long-term.
Short-term issues bring opportunities. Long-term issues bring problems. The issues overseas are longer-term in nature and will no doubt continue to impact our Market. The strengthening Dollar looks to be a new trend, something we haven’t dealt with for over 10 years. It’s having an impact and re-pricing American assets.

There is plenty of fear out there in response to the sell-off. Investor sentiment shows Bulls in the mid 30% level. This is exceptionally low and historically a very good contrarian indicator. Market bottoms tend to come when sentiment is this low. We stated in our newsletter how investor confidence has been so low throughout this 5-year Bull run, and is nothing like previous tops. Before the Bubble burst in 2000, the level of Bulls were over 60%, which was a record. We’re not convinced that the lows are in yet for the year, but it feels like it’s close. To put in perspective we have a great deal of cash on the sidelines waiting for purchases. We have seen nearly twenty 5% corrections since this Bull began. Our job continues to dissect whether this is another buying opportunity or the beginning of something different.

Earnings season really kicks in next week and the midterm election is less than a month away. Interest rates remain low and falling oil prices means cheaper gas, which is great for the consumer ahead of the holidays. These are all positive catalysts ahead. The US is in far better shape than the rest of the world.

Have a nice weekend. We’ll be back dark and early Monday.

By: Mike Frazier

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