5/8/2009 Skeptical Sentiment Suggests Rally Can Continue
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Global Equity Markets
Had I desisted from writing following my March 5th "ALERT" of an imminent bottom I'd have bragging rights to both avoiding the 2008-09 bear market and picking an important market bottom. However, that wasn't to be....
I never hesitate to pat myself on the back here so I have no recourse save to put the whip to my own back for my failings during this rally. It's gone far longer than I would have ever expected and I have no evidence that its end is near. Curiously, over the past few weeks bullish sentiment among newsletter writers and investors has actually been ebbing. In other words, as the market has climbed investors have actually become more skeptical rather than more optimistic. The market is climbing the proverbial "wall of worry" that so often accompanies rallies that go a lot further than most expect. In other words, as long as investors are skeptical the odds favor higher prices. When investors do become polarized to the bull camp then we need to worry... Most intermediate-term indicators have gone from oversold in early March to overbought today. However, this alone is not enough evidence to suggest a top. We would need to see a dynamic shift of sentiment towards bullish extremes coupled with a deterioration in market internals. International Equity Regions
Asia, LatAm and Emerging market regions are top-ranked by our model.
ASIA (ex-Japan) - EMERGING MARKETS - EURO - JAPAN - LATIN AMERICA (LatAm) - USA - Equity Styles (US Markets)
Our primary equity model remains defensive. Historically, when it has avoided substantial rallies such as the present one from March it has been because the rally was a bear market rally (a temporary rally within an ongoing bear market decline).
This suggests the possibility that the March lows may be revisited or, if the bear market low did occur in March, that there might be some substantial loss of recent gains before the bull market reasserts itself. Such a situation occurred early in 2003 as the market came close to re-testing its October 2002 lows at the beginning of the previous bull market. Investment Grade Bonds
High Grade Corporate and International Bonds remain on a BUY.
High Yield Bonds
Our model is on a BUY for domestic high yield bonds.
Inflation Hedge / Real Assets
GOLD Bullion - (GLD) - On a SELL. Goldman Sachs Commodity Index (GSG) (largely energy ) and DB Commodity Index Tracking Fund (DBC) on a SELL . Any continued strength in oil, which is heavily weighted in this fund, could see a flip to a BUY signal. Real Estate - Our models rank REITs as a BUY due to underlying strength in the equity markets.
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