Such is the weekly call from Raymond James uber-strategist Jeff Saut:
The call for this week: According to my friends at Bespoke Investment Group, “The first half of the year came to an ugly end this week. The S&P 500 is down more than 8% over the last 10 trading days, with down days 9 out of 10 times.” This should come as no surprise to readers of these missives since I recommended layering downside hedges into portfolios during the entire month of April. Granted, I recommended selling most of those positions over the two weeks following the “flash crash” of May 6th. Yet as stated, “Just like a heart-attack patient doesn’t get right up off of the gurney and run the 100-yard dash, I don’t think the equity markets do the same either.” Accordingly, I have been cautious since the end of March consistent with my New Year’s mantra, “I think the trick in 2010 will be to keep the profits accrued to portfolios from the October 2008 through March 2009 bottom process.”
Since the “flash crash” low of May 6, 2010, we have had a Dow Theory “sell signal” (5-20-10), a sell-signal from my proprietary intermediate trading indicator (the first since December 2007), the monthly stochastic-indicator has turned negative, a downside violation of the 12-month moving average has occurred, most indices have broken below spread triple-bottoms in the charts, and last week we got a “death cross” when the S&P 500’s 50-day moving average (DMA) crossed below its 200-DMA. All of this suggests that a cautious stance on stocks is warranted. Indeed, of all the vehicles I monitor, only the Yen, Gold, Silver, and Fixed Income are higher for the month of June, the 2Q10, and year-to-date. That said, such extreme downside readings typically imply stocks have been too compressed on a short-term basis and consequently a rally may be in order.