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Jeff Saut: Life After Dow 10,000

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Avoid playing the laggards in favor of the leaders.

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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 Greek mythology, Sisyphus was the son of Aeolus, who was the King of Thessaly. Noted for being sly and evil, this cunning knave waylaid travelers and murdered them. After betraying the gods, Hades himself intervened and as punishment required Sisyphus, for all of eternity, to roll a huge stone to the top of a hill only to have it plunge back down just as it was about to reach the crest.

According to the dictionary, Sisyphus means "endless and unavailing, as labor or task." Since mid-September there's little doubt investors have felt the same frustration Sisyphus did as the media trumpeted the Dow Jones Industrial Average's (DJIA) failed assaults on 10,000.

Last week, however, Sisyphus succeeded as the senior index legged past the 10,000 mark for the first time in more than a year, causing one Wall Street wag to ask: "Is this a breakout or a fake out?" (See Breakout or Fake Out?)

Nevertheless, many people continue to view the stock market's advance with skepticism. As our technical analyst, Art Huprich, pointed out at Raymond James' Vancouver conference last week, "both Jeff and I continue to get questions about DJIA 2700, or in some cases DJIA 400, as is being forecast by certain pundits."

Worth considering, however, is that these same pundits have been forecasting those downside targets for 10 years. Still, the media trots them out, and subsequently my phone lights up with the question: "Do you really think this is a rally in a bear market; and, can the DJIA really go to 400?

To us it's interesting that despite the monstrous rally in stocks, accompanied by extremely strong advance/decline statistics (see chart), the negative nabobs continue to call this a bear market "sucker's rally!"


Source: Thomson Reuters

While it's true that markets can do anything, the real "suckers" have been the bears who didn't employ adaptive asset allocation and consequently have "sat" out the seven-month rally.

Clearly, Raymond James disagrees with the bears' assessment, having maintained the view that this is a new bull market since April. Moreover, participants got the Dow Theory confirmation of that "bull market" strategy in July, or August, depending on which levels you used for the Dow and the Transports.

Whether the current rally turns out to be a tactical bull market within the longer-term confines of a trading range market or the first leg of a new secular bull market remains to be seen. But, as Raymond James told Todd Harrison, our friend and founder of Minyanville, "Does it really matter?!" Indeed, as the title of Ned Davis's legendary book reads, Being Right or Making Money?

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No positions in stocks mentioned.
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