Five consecutive days of rallying more than wiped out the deficit from last week and most of the pre-Labor Day sell-off. Here is how we look as of 9/16:
We still have a lot of wood to chop in Top 20, but it was a good week. The model rallied 6.74%, while the S&P 500 rose 5.42%. While smaller stocks generally did slightly better than larger ones, which helped, it was really our exposure to Technology that boosted this week's results. Over the past month, we have had widely varied performance among our holdings, with three stocks up more than 10% and three down by more than 10% in a relatively flat market. I continue to see plenty of value in my watchlist and am contemplating some other changes in the model.
Conservative Growth/Balanced had a strong week too, rising 3.9%, about .9% more than the combined stock and bond benchmark. Again, we were helped by a large Technology exposure, but we also benefited from being overweight stocks at 75% compared to our 60% benchmark. With the recent recovery in the market, I am contemplating reducing some exposure - not sure yet. In any event, we do have some outsized positions that could lead to a reallocation between holdings.
Sector Selector ETF had a tough week. Emerging Markets were a drag, and our Mega-Cap exposure, which we have been trimming, held us back as well. For the week, the model rose only 4.8%, trailing the market by about .65%.
Outlook
The market has moved again to post-crash highs, and I think that we can press a little further (1250-1260 on the S&P 500 looms as resistance). What happens next is difficult to project. While we have higher highs and higher lows since the bottom in August, we don't have a clear bullish sign yet. As I said last week, there continues to be a lot more fear of slowing than reality. We continue to hear some encouraging reports as well as others that are only modestly disappointing (certainly not in line with the thrashing over the past few months). We are in the high season of conferences, so it is particularly encouraging not to hear too many pre-announcements or negative chatter. Other signs of encouragement included continued high-profile insider buys as well as a steady pace of mergers and acquisitions. There is a good shot we finish out the month (two more weeks) higher, which would produce our first positive month since April. Let's get there first, but I think that we could get follow-through if that is the case.
As I have shared, my official target for year-end of 1500 on the S&P 500 is a real long-shot at this point. I will be developing my outlook for 2012, which I expect to be positive, overthe next two weeks. With a cooperative market that doesn't include terrible liquidity, I believe that we could see some strong improvement relative to the market in Top 20 over the next few months, similar to 2010. I worry for CG/B that a big rally could be difficult to match, but we are overweight, which hopefully would counter any slippage relative to the market among our conservative holdings. It would be easy to give up on SSETF, but I am not counting it out yet. I like our positioning, including our stepped-up exposure to Small-Caps, and hopefully our early commitment to Financials finally bears fruit.
Articles
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While I am not sure we can count on another 5 straight up days, I am hopeful that we can test at least a little higher. Have a great weekend!
Alan Brochstein
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