Follow-up

I'm going to respond to a few questions I've had about my posts from the last couple of days.

1. I am not negative on the markets unless you construe a trading range as being negative. As I stated on Tuesday nothing changes my view that we are in a longer term secular bull market or changes my belief that stocks have the potential to be higher in the next 12-18 months. To expand on this a bit, it is my thesis that stocks began a secular bull market back in March of 2009. My guess {and it is nothing more than a guess at this point} is that stocks are somewhere between 30-40% of the way through this run. But it would not be inconceivable that stocks pause and digest the gains we've seen since Labor Day. The most logical time for that to occur would be at a period of statistical weakness for stocks which has historically been March-October.

2. Probability dictates that the most likely course of events will be for stocks now to mark time and establish a trading range. If I have to put approximate numbers on where I think that might occur, I would say roughly between 1,350 on the upside and would use 1,250 of the S&P 500 as the bottom of the range. I also think a case could be made at some point for expanding that range to 1,400 on the upside and also using 1,200 in a more extreme case as the bottom of the range. All of these levels should only be used as reference points. There is no law that says they must be met or exceeded.

3. Stocks have rallied so far today. That does not affect my thinking about the probable nature of stocks marking time for some period. I pointed out in yesterday's chart that stocks were by our work over sold. The readings that were reflected in that chart are traditionally signals suggesting that stocks could rally. There are also money flow reasons regarding the end of the month and the end of the first quarter that could put a bid under stocks for the next week or so. So far the rally that we have seen has put us back to about the middle of the trading range that I think is being carved out.

4. No law saying stocks can't rally from here. I ended yesterdays post by saying "Stocks could fool us all, burst through the top end of the range and head higher. That right now seems like a lower probability event, but if it should occur then we will still participate given how we are invested." There is no law saying that after all the ink spilled in my current assessment that I'll be right, Indeed the consigliere's first two lessons were that "Stocks will do what they gotta do to prove the most amount of people wrong, and stocks will move in the direction that causes the most amount of pain." What would likely cause the most pain for the fast money crowd would be a rapid upward thrust in prices. Note that given how we are currently invested in our different strategies we should participate along with the markets if that indeed does occur.

5. Buy weakness, sell strength: The market's recent signals means that the playbook tells us to bring out the defensive pages of the game plan. In our case that has been to raise some cash by making sales in sectors that we think have become somewhat extended. It has also told us to become a bit more aggressive when we recede to the bottom of the range. In that case we repositioned into certain sectors that we think are compelling {financial & dividend paying ETFs} while also instigating certain purchases for our shorter term tactical strategies. Look for us to become less aggressive as markets head higher and for us to possibly make some sales along the way as we get to the higher end of the range. In other words look for us to be buyers of weakness and sellers into strength where appropriate.

Hope all of this helps.

*Long ETFs related to the S&P 500 in client and personal accounts.