Wednesday, August 29, 2012

Larry Berman Is Extremely Cautious (2)

A clip from Larry’s blog post August 15, 2012

Quote: The S&P 500 is at the top end of the 10 week recovery channel and very close to major resistance from the 52-week highs, at the same time VIX is telling us to be cautious. So what does one do here?

1) If preservation of capital is more important than gains; go to cash.

2) If maximum upside gains is the goal; wait for the market to do something bearish (say a close below 1385) and go to cash. If new highs are made trail stops tight under daily lows.

Some combination of these two is where most people’s heads should be at. We do not know what the Fed will do, but we know that seasonality is strong in Sept-Oct during election years when the Democrats run the White House. But here too we only have a small sample size and the results, while supportive, are statistically insignificant. If greed is entering your thought process at this point get rid of it, when the outcome is as unclear as it is today, one should be cutting exposure to markets. We remain extremely cautious at this point. End Quote:

Again I can’t comment on Larry’s analysis because I don’t follow the VIX or seasonality and I don’t care who will win the U.S. election – but I do care when two U.S. economy sensitive bellwethers like SPDR S&P Homebuilders (XHB) and the Market Vectors Retail ETF (RTH) exchange traded funds post new 52-week highs. The XHB is a basket of U.S. home builders and the RTH is a basket of U.S. retail stores. The bullish price action of these two diverse consumer asset classes rule out the probability of a U.S. recession.

 Don’t shoot the messenger.

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