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Jeff Saut: Emerging Markets Lead the Bulls


The benefits of taking your portfolio international.

Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.

A recap of a conversation I had last week:

The portfolio manager said, "Hey Jeff, I listened to you 6 weeks ago and covered my shorts and even went long some of the ProShares Ultra S&P 500 (SSO) you recommended. Regrettably, I sold all of those trading positions a week later even though you said this might turn into a 'buying stampede'.

I said, "It wasn't until about 8-10 sessions into the rally that I deemed it a buying stampede, so don't feel too badly. I did, however, counsel to give the 'upside' the benefit of the doubt since the early March 'lows' came from oversold levels not seen since the major market bottom of 1974."

He said, "Are you still long all of your trading positions?"

I said, "Nope, only half of them since I rebalance positions as prices rise (read: sell partial positions)."

He said, "But, my performance is lagging and I need to buy something because I am losing clients."

I said, "That's always the way it is 29 sessions into a buying stampede whereby the folks that swore they would never buy stocks again become smitten by greed, capitulate, and buy stocks on top of a 29-session, 30% "spurt," just in time for it to make a trading top. And, while this may be one of the five 30+ session buying stampedes of my lifetime, I am not inclined to lever up accounts this late into the stampede. To be sure, if this is a new 'bull market' there will be plenty of time to commit capital."

He said, "How can this possibly be a new bull market with the worst yet to come?"

I said, "E-V-E-R-Y-B-O-D-Y is waiting for the worst to happen; but, it's already happened with Bear Stearns, Lehman, Fannie Mae (FNM), etc. So tell me, how can it get any worse?! Indeed, if it gets worse than it was at the November 2008 lows, and the subsequent early March 2009 undercut lows, they might as well close the NYSE and I'll retire.

"Furthermore, I can find no examples where the major market averages broke to new lows only 6 weeks after a major low. And I have repeatedly deemed the demonic S&P low of 666 to be at a minimum a major intermediate low and maybe more. A new low 3 months, 6 months, 9 months later; sure, but not after a mere 6 weeks."

Therefore, I continue to favor the upside, until the back of the now 29-session buying stampede has been broken by more than a one- to 3-session pause/correction; and I am raising stop-loss points accordingly.
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No positions in stocks mentioned.
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