What a life we have led in Investorland for the last 3 1/2 years. From that bottom in 2009, the strongest stocks were the ones that had been slaughtered the most in the prior year. Then starting in 2010, we had that big "double-dip" recession fear correction that took over 15% off the popular indices. It changed the personality of the market from growth to defense and then back to growth in the late months.
If that wasn't enough, here came 2011 - same story, second verse. The net effect is that these last two years especially have frustrated so many investors that at most they've hauled it in and left Investorland, and at the least they are just buying market-based neutral ETFs. This too will change, my friends, and if history is our guide, it will change just about exactly when the herd is reversed.
The current period is the third event - the third potential correction in this 2010-2012 period. Will it emulate those last two years? There is always a chance, of course, but we don't think so. Our advice continues to believe that the BIG CYCLE we've been in since 1998 is about to end, and that a new growth oriented bull market will ensue. We are guessing that this year's election will sound the starting gun for the new era. But guesses aside, we let one discipline command our strategy, and we gladly follow its guidance. And today, our Asset Allocation Model continues to suggest that we maintain our fully-invested stance.
You can see vividly in the chart below (by looking at the orange line) that the short-term correction we've been guesstimating would ensue from late January of this year has certainly occurred...and continues today.
As I look through my charts, I see the vast majority of stocks either correcting from 3 months ago or simply pulling back to those early February levels. With the election season heating up, and some economic activity, we'll continue with our stance of being fully-invested for the long-term, but pruning around the edges as opportunites present themselves for the short-term.
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