Market Wrap – week ending 4/18/2014

Not much has changed our outlook since last week’s alert.  Although the week was constructive and positive from a performance point of view, the longer term outlook still looks questionable.  Although in the short-term there are buying opportunities, the market still looks broken.

Leading stocks have broken down and continue to underperform the larger, more stable stocks.  They need more time to warrant an investment.  The larger, safer stocks are acting well, mostly moving sideways instead of declining in value, showing a clear ‘flight to safety’ approach by the institutional investors.  

The smaller cap, more risky stocks topped in early march and have been declining ever since, with the Nasdaq down roughly 10% from the top nearly 2 months ago.  Leaders are supposed to lead, and the current risk-averse nature will not propel the market to new highs over the long run until this occurs. 

Looking over history, there has never been a time where the market has moved on to new sustainable highs without the smaller caps leading the way.  We could get to new high ground, but in order for it to hold … to be sustainable, we need to see these riskier leading stocks acting well and leadingagain.  Bottom line, the large investors need to be interested in investing in the entire market, not just in the safe companies for a long term rise to occur. For now, this is just not happening, so a defensive posture still makes sense.

Typically mild corrections last no more than six weeks, so we technically could be at the bottom now, and will shortly head back up, but the jury is still out for now … until we see a decent inflow of funds, I see no conclusive evidence that the worst is behind us.

As you already know, all of our strategies moved fully to cash a few weeks ago, so we have nothing to worry about if the market continues down.  We will continue to monitor the situation very closely and if things improve we’ll quickly be back in the market.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC