Back to Normal?

Labor Day has come and gone but normal market volume has not yet returned. (They left the Hamptons and went to the US Open?) This week there were two up days and two down. The two down occured on noticeably higher volume than the up days. And the selloff was tougher than the rallies. This is the sort of thing that I have been concerned with for the last month. (see previous posts) Another point that caught my attention was this week's weakness in stocks, oil, and gold. Bonds sold off, too, but rallied back considerably. This is a confusing message from the market.

Our opinion of keeping a lower risk profile with larger than normal weights in bonds and cash remains. But we would use weakness to build positions in stocks. There are many names that appear to have solid technical patterns, matching strong fundamentals and earnings growth potential. That is precisely where we will focus.

Despite my cautious view towards stocks, equities have a lot going for them. Their resiliancy this summer along with the recent decline in interest rates and oil prices create a bullish environment. The relative weakness is small and mid indices is problematic but at the same time, those indices are building ok bases. (More troubling is the lack of confirmation from the Transports.) Finally, many stocks and indices look ok when taking a multi year view. Yes, they declined hard this summer but in many cases stocks and indices came to support from 12 - 18 months earlier. It's certainly possible that this selloff was a pause and a better market is ahead of us.

Enjoy the weekend.