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Jeff Saut: No More Easy Money


Equity markets may be nearing a top.

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.

In October 2002, I was quite bullish, though I'd previously been cautious since the Dow Theory sell signal of September 1999. The senior index had declined 39% from its bull market high of 11750, into its tactical bear market low of 7200, and investor sentiment was bleak. Nevertheless, the stock market's lows were made that October, yet those lows were subsequently retested in March 2003; again, I was bullish.

Fast forward to November 2007: I was cautious, despite the Dow's new all-time high recorded the previous month. Accordingly, I entered 2008 in cautious mode, plainly not knowing the 2008 stock market carnage was going to be nearly as bad as it was.

That being said, I turned pretty bullish on the capitulation alert of October 10, 2008, when 93% of the stocks traded on the NYSE made new annual lows. And, even though the S&P 500 (SPX) sank to its intermediate price low on November 20, the ratio of new annual lows came nowhere close to where it was on October 10, 2008.

I also opined that the psychological low was made on December 1, 2008, when Meredith Whitney (aka: Madame Death) stated that nearly every bank in America was broke. Following said pronouncement, the Dow sunk 680 points, and I reiterated my bullish call into early January 2009.

Having enjoyed the ensuing rally, I again turned cautious in mid-January of 2009, even though I thought the markets were still in a bottoming process. In my opinion, that bottoming process was completed the week of March 2, 2009, when I stated on CNBC that all indicators suggested the markets were going to bottom that week.

Eerily, the SPX bottomed that Friday (March 6) at 666, and has never looked back: The index galloped into the longest buying stampede (51 sessions, without anything more than a one- to 3-session pause/correction) of my lifetime. Being an odds player, I have, at the margin, missed the past 20 relatively upside sessions, having sold my remaining trading positions near session 30 in the upside skein. Worth noting, however, is that those positions are only roughly one point higher than they were at what I think was the rally's momentum peak of April 17.

To be clear, it feels like the major indices are in the process of forming an intermediate top, with insiders selling stocks like mad, many of the leading groups breaking below their respective relative-strength support levels, the major indices showing weakness despite their decent breadth reading, and upside-over-downside-volume indicators (along with upside points vs. downside points) screaming "sell."

Still, as previously stated, I can find no instance where the major indices have sprung from a generational oversold low reading (like March 2009) into a 6-week, straight-up rally, then subsequently came back down and retested, or broke, those reaction lows in anything less than 3 months (sometimes, it's 6 months).

Accordingly, despite the fact that the buying stampede is clearly ready to be broken with a 7-10% correction at any time, I don't think the equity markets are vulnerable to a more serious correction until we enter June.
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No positions in stocks mentioned.
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