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10/1/2010 - Sentiment and Market Internals Suggest Higher Prices


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Equity Market Overview
While the broad equity markets have made modest gains over the past twelve months, it's been anything but a smooth ride. Volatility has continually increased. Unlike other rally attempts in June and July, however, this rally is supported by both strong market internals and the requisite skepticism.

Weekly sentiment surveys from both AAII and Investors Intelligence remain at moderate levels even after this recent rally suggesting still higher prices. In fact, at the late-August lows, the ratio of Bulls vs. Bears per the Investors Intelligence weekly sentiment survey reached an extreme not seen since the beginning of the bull market at the March 2009 market bottom! This year's trading range and volatility have done much to boil off speculative excesses and prepare the launch of this next up leg in the bull market.

The technical condition of the market is finally robust. New 52 Week Highs have expanded dramatically; far beyond the levels seen at the recent August highs. This shows persistent and significant accumulation of stocks and bodes well for the intermediate-term.

Short-term market weakness is always a possibility. There are some indications that a near-term correction may occur. I would view any such weakness as an opportunity buy and/or add to positions.


 

US Equity Markets (Equity Style Model)
Mid-cap Growth stocks are most favored by our Domestic Equity Model at an 80% weighting with Small-Cap Growth and Mid-Cap Value each having a 10% weighting. Leadership by the growth segment, particularly mid-cap and small-cap stocks, suggests higher prices.


 

International Equities
Top Country Recommendations:
IDX - Indonesia
ECH - Chile
GXG - Columbia
EWM - Malaysia
THD -Thailand
TUR - Turkey


 

Investment Grade Bonds
We are long an equal mix of International and Domestic investment grade bonds.


 

High Yield Bonds
High Yield Bonds are on a BUY.


 

Real Assets / Inflation Hedges
Our models are long Gold Bullion and REITS.


 

Currencies
We are long foreign currencies: 50% Yen, 30% Australian Dollar and 20% Swiss Franc.


 


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