Market Wrap – week ending 5/2/2014

Again … 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, albeit better than last week.  Although the market has stabilized and in fact recovered nicely so far from the decline of the past 6 weeks, we still have leading stocks severely underperforming.

In fact, the greatest gains over the past few weeks have been in income and blue chip stocks; recent breakouts include Procter&Gamble, 3M, Exxon Mobil, Wal-Mart Stores and tobacco firm Lorillard.  All incredibly strong companies, but certainly not leading stocks from a growth perspective.  Clearly, investors are still being risk averse, looking for safety over growth.

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. 

As I mentioned last week, 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 might 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 leading again.  Bottom line, the large investors need to be interested in investing in the entiremarket, 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