A Change In Short Term Sentiment.

Many of our shorter term indicators have moved into the negative column this week. So far what this represents is a loss of investor confidence that stocks are going to make another major move up soon. We do not believe at this juncture that it represents a longer term change in market trend. We have talked about this in several different postings in the past two weeks. We will also discuss this a bit more in our latest investment letter which will go out over the internet to clients Sunday night and will be mailed to others on Monday. If you are not a client or a contact of our firm, e-mail me and I will send you a copy. I can be reached at lumencapital@hotmail.com.

What I think is happening:

I think that the market's recovery since March is running into an inevitable pause. First stocks are up over 30% from their lows. Second, many investors that bought stocks recently may be looking for places to take profits. Finally people who might have wanted out a few months ago have a better price point at which to sell today.

A pause here is not necessarily a bad thing as it gives stocks time to consolidate their gains. Longer term I am bullish as I feel that absent some unlooked for event or some unconsidered economic turn that stocks have priced in most of their known negatives and have slowly started their long recovery phase.

Shorter term, that is the environment over the next several months, I think stocks will remain locked in the trading range we've discussed previously until there is further improvement in the economic picture. Currently we are near the top of that range and right now the evidence suggest that we have failed to break out to the upside for the third time in the past six months. Accordingly per the Playbook, we have begun to be a bit more defensive in our short term investment posture, actually doing some selling for risk appropriate accounts over the past week. We will likely continue in this manner should stocks remain weak in the following days. For certain risk appropriate accounts we may even try to hedge part of their portfolio's downside exposure.

Understand that our selling is more of a short term nature at this point and that cash raised would be redeployed either at more favorable prices later on or back into sectors that we think might be areas of out performance going forward. We have discussed some of these sectors in the past and will give an update on these going forward.