Here’s the good news (if you’re a bull, which all good Americans are, by reflex. Bulls are what made the country great and built the railroads, and crossed the prairies and raised the Empire State Building and grew Wall Street and created the tech bubble and the real estate bubble and credit default swaps and…but we digress…) as we were saying, here’s the good news — the S&P is within an eyelash of our can’t fail, unambiguous, sure to be correct stop which means the bear market is over and it’s tie to get out the old chaps and 10 gallon hat and get ready to ride the bull. Well, that’s all bull sh**. But the stop is 991.04. For whatever it’s worth. Generally speaking, in the past, it’s been worth a lot. Now for the bad news.
The Indu is still a fair distance from the stop, which is 9633.34. What does this mean to your average bull rider, or your average bear baiter? It means –heavens forfend — the dreaded condition known to Dow Theorists as divergence — or diagreement. Meaning uncertainty. Uncertainty and treachery are certainly the theme songs at this moment. We don’t trust these markets as far as we can throw Goldman — and considering its size, that’s not very far.
Being technicians uncertainty is less a problem for us than for your average investor. For our family accounts we scaled out of some 529 investments this week and a little scaling out might be a good idea right now. We would be hesitant to make major new commitments at this point, in spite of the proximity of the stops. And we would be certain that all our positions, long and short had clear stops identified and entered. We would also try to have some balance in the portfolio between longs and shorts.
While this little bull since March has raged on it would be wise to remember that what goes up must come down, and usually the coming down is a lot quicker than the going up.
We will address long term considerations in another letter this weekend.