Wow, another Mother’s Day. They can really get to you, especially when your Mom is 92 and everyone else of her generation in the family is gone.
You sit there at your mother’s side at church and then at the Mother’s Day brunch at the Senior Apartments, and see those familiar eyes, her smile, hear that voice and her laughter. It all comes back to you…
How many phrases did it take to grow from an infant to adulthood?
| Open wide | Pick up your toys | Turn out the lights |
| Finish eating | You’re going | Stand up straight |
| Put it back | Be back before dinner | Clean your room |
| Clean your room | Clean your room | Love you too |
Of course, with the admonitions came lots of talks – discussing the family mostly, but also encouragements at just the right time, acceptance when it really counted, sharing so many losses, and also lots of dreams.
Today the phrases I’m most likely to hear are very different. A couple of them are well worth heeding. They’re all well known on Wall Street but they never passed over my mother’s lips.
“The trend is your friend.” When the market starts moving strongly in one direction or the other, studies encompassing more than 100 years of market history have shown that paying attention is rewarded.
In the current market rally, we began stressing this shortly after the market bottomed way back in mid-November, after the stock market plunged in the wake of the Presidential election. Since then, we have had just three pauses and none of them saw the market fall by even 5%. None of these downturns have exceeded seven trading days in length.
On January 28th I wrote that in such times you’ll hear “Buy the dips” and I encouraged you to do so. But I warned that they would be quick and you would have to be nimble. This rally is like a fast moving train – you have to jump on board whenever it slows down for the curves.
“Don’t fight the Fed.” Fellow Michigan State University grad, Marty Zweig (who passed away this year at 70 – much too young), coined this phrase in his book: Winning on Wall Street. As Marty wrote back in 1986, “…the Federal Reserve writes the script for the stock market.”
“ Don’t bet against the House – it always has the edge.” When the Federal Reserve is accommodating, interest rates are low and falling. This increases everyone’s buying power, especially in the market. Add to that the recent practice of the Fed going beyond rate setting and actually stepping into the markets with its enormous buying power to purchase Mortgage Backed Securities and you have QEI, QEII and now QE infinity.
A quick look at the following chart shows just how powerful this continual intervention can be:
Source: Bespoke Investment Group
The blue line shows the level of Fed purchases. The red is the S&P 500. When the Fed is buying (the blue line is climbing), the S&P rallies. When the Fed stops or pauses, the S&P tumbles. As is obvious, right now the Fed is buying – to the tune of $85 billion per month and new highs on the S&P 500 are becoming commonplace.
No wonder Wall Street is concerned about when the Fed decides to turn off the fire hose.
At the moment, I don’t think that is likely. Perhaps we can even take the Federal Reserve Chairman at his word and we will see no change until 2014.
In the meantime, as I have been saying since the November 26th Hotline, it is important that everyone have some equity participation in the stock market. Not as a buy and hold investment, but as a part of a dynamic, risk-managed strategy. Now that the NASDAQ is once again outperforming the S&P 500, consider ourVAN or STF strategies.
For participation in the S&P 500; S&P Trading Patterns, Disciplined Management or Contrarian S&P Trading fit the bill. Or look at Third Day Tactical, which trades both indexes plus the Russell 2000. With the international stock markets outperforming for the last month, Global Select may be the way to go or Tactical Emerging Markets. Finally, if you must stick with bonds, at least own some of our Strategic High Yield Bond strategy, which performs best in a rising stock market.
Of course, many of these equitystrategiesand more are already included in our newly re-engineered MAPS, SAS and Schwab MPT programs. With these we will choose, monitor, and reallocate the strategy choices for you monthly.
I know it’s hard to buy when the market is making new highs. But I do believe we will have a dip in the next two weeks. If our Political Seasonality Index is correct, the top could come between now and the 17th.
Mom always said, “Eat your Brussels sprouts, they’re good for you!” I fought her – now they’re one of my favorite grilled vegetables.
I guess what I learned best from my mom over 60 years could be summed up in one word – “Listen.”
Love you, Mom.
All the best,
Jerry
*Tip of the hat tothis Sunday’s Detroit Free Press columnby fellow Detroiter, Mitch Albom, which was one of the inspirations for this story (you can guess the other one).
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