Stock Market Update: Shifting from BULLISH to NEUTRAL

The US stock market, as the preeminent global growth market, and a proxy for all risk assets, has shown signs of the potential for a prolonged and material deterioration, owing to indications that US economic growth is faltering.

On Project Syndicate, Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University, observes that "the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation. A more accurate, if less reassuring, term for the ongoing crisis is the 'Second Great Contraction.'" http://www.project-syndicate.org/commentary/rogoff83/English

From a technical standpoint, the US stock market has created a "head and shoulder pattern", broken through major support at the 1254 level for the S&P 500, and perforated the 200- and 250-day moving averages. While we don't place much faith in technicals, we do recognize that their affect on others behavior, when multiple indicators converge, warrants attention. From a behavioral standpoint, the various surveys of Confidence/Sentiment combined with the recent action of options traders, suggests that more downside remains possible.

Todd Harrison of Minyanville says, "The question is whether the negativity has become too pervasive (right at the bottom of the 2011 trading range) or if social mood has officially turned -- and we know that social mood and risk appetites shape financial markets." http://www.minyanville.com/businessmarkets/articles/bull-market-backstop-todd...

Accordingly, we reduced our Growth portfolio Beta by removing a single, UltraLong Exchange Traded Fund. This is indicative of a switch in macro view from BULLISH to NEUTRAL. More times than not, a market like today's will actually recover. Were that to be that case, we'd revert to BULLISH and up the Beta. But the possibility exists for further downside, so we will watch for indications of when it's time to go BEARISH and further reduce Beta.




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Category:

Education

Tags:

• stock market 2011
• stock market correction 2011
• US economic growth
• US economy
• trading
• technical analysis
• fundamental analysis
• growth portfolio
• bullish stock market
• bearish stock market
• neutral stock market
• S&P 500
• Bill Valentine
• Todd Harrison
• Project Syndicate
• Kenneth Rogoff

[PatricksTime]

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[lilfreeway21]

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