Invest By Model

June Swoon Follows MAYhem

The market entered official "correction" territory, with the S&P 500 trading more than 10% below the intraday high reached in the first trading session of the quarter on April 2nd, closing at the lows of the day and slightly below the 1280 level I had suggested might be support.  Here is how the models looked one day into the new month:

In case you missed it, I posted a review of May on the blog.  As a reminder, you can always access the blog easily by logging in and clicking on "blog".  While I email quarterly reviews and weekly commentary, I always share end-of-month reviews as well as trade descriptions on the blog.  If you use Twitter, you can follow me for notification of updates to the blog.

Top 20 had a terrible day to cap a terrible week.  While the model is still up YTD, we are now slightly lagging the S&P 500.  We are well ahead of the Russell 2000 index of Small-Caps, which is up 0.07%.  For the week, the model dropped 4.5%, losing about 1.5% more than the S&P 500.  This week marked the four-year anniversary of Top 20, and, while we are in a rough patch at the moment, it's worth recalling the history of strong performance the model has enjoyed.  The S&P 500 is up a total of 1.63% since our launch (including dividends), while Top 20 is up 84%.  We don't win every single quarter (this data is available on the website under the performance tab, where we break it down by quarter and by year), and we tend to do a bit worse than the market when the market is weak, but we almost always make up for it when the market recovers, as it ultimately does.  We also tend to do better when the market is at its worst, like in 2008 (due to our focus on strong balance sheets).  While I have suggested that finding wildly mispriced (cheap) securities was a lot easier in 2009 than in 2010 and even the first part of 2011, I am quite confident about the potential of the stocks in the model currently.

Conservative Growth/Balanced declined 2.38% this week, which was almost 1% worse than the stock/bond blend.  The bulk of this poor relative performance was due to being overweight stocks and underweight bonds.

Sector Selector ETF had an interesting week, declining "only" 2.54% and beating the market by about 0.4%. This strong relative performance came today, as the precious metals ETF soared.  I had been a little early adding down in the hole to this one, but I believe that it offers a nice diversification potential as well as capital gains opportunity.  We are up 12% on the last purchase, but the first two buys are still below cost.  With the big jump up as the stock market has melted, I am inclined to consider taking some profits on the recent addition in the coming days, especially if it can advance a bit as the rest of the rest of the market tests the lower end of the 1250-1280 zone of support.

 

Outlook

Between my update this morning and what I shared last week, I really don't have much to add.  Let me just repeat what I said last week first and then I will try:

I don't have much of an update this weekend.  While it was encouraging to see the market bounce and get back towards the 1320-1350 zone that I had expected to be support for the S&P 500, we closed below it.  At this point, we are still in correction with no signal yet that the low is in.  I shared some levels that might be tested, including the possibility of a slight breach of the 2011 closing price of 1257.6.  Longer-term, I remain constructive, but, in the short-term, we are contending with some volatility related to Europe once again.  It's always hard to tell "what's priced in" , and the challenges to the global financial system are certainly out-of-the-ordinary, but we emerged from the 2010 and 2011 by printing new post-2008 highs both times.  The 2012 correction has been less severe (so far) and hasn't been nearly as volatile as the prior two years.  After two very strong quarters (Q4 and Q1), it's not at all out of the ordinary to retrace a bit.  We should get some news out of Europe in mid-June regarding the potential for a Greek exit from the Euro.  Until then, I expect that we could base between 1250-1280 and 1370.

So, here we are, at the high end of that zone.  I have no crystal ball, but I do have some tools that I can use.  They are telling me to remain patient before conveying that the lows are in, as the market isn't oversold enough to warrant a reversal in and of itself.  With that said, the bad news of today and this week (not just U.S. employment weakness, but also data out of China and India) could be a catalyst for coordinated activity by global central banks.  The problem is that haven't we "been there, done that"?  There are some big events ahead in June:  Supreme Court ruling on Obamacare, Greek elections (6/17), and a European leader's summit (6/22).  I do know that markets turn on a dime, and the big move in gold today may be a precursor to coordinated action.  As I mentioned this morning on the month-end review, perhaps it could inspire our inept political leaders in Washington to address the "fiscal cliff" sooner rather than later.  Markets hate uncertainty, and, as of now, we are on auto-pilot to fly into a potential double-dip recession if we push through the scheduled spending cuts and tax hikes.  

While the market doesn't feel quite as bad as it did at the lows in October, we finally have had several big down moves, though nothing like what transpired after July of last year into October or in the previous year following the May flash-crash.  I still see tremendous value in stocks and horrible value in government bonds.  My economic outlook has been for "muddle along", and that's what we have.  I tried to be cautious at the end of March, but I really didn't anticipate the extent of the contraction, especially among the smaller stocks that I tend to favor.   5-7% has turned into 10-12%.  After two back-to-back spectacular quarters, Q2 has retraced about 41% of the move in the S&P 500.  The 1250 level is approximately the halfway mark, which I suspect should contain this correction.  Hopefully, we are close to the end of the move. 

 

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Enjoy the weekend...

 

Alan Brochstein, CFA

www.InvestByModel.com

Correction Intensifies in May

Like the prior two years, this was a tough May. The macro issues overwhelmed the market, with a worsening political and economic situation in Europe deteriorating.  A surprise loss out of JPM and a horribly executed IPO for Facebook didn't help matters.  The value of the dollar soared against the euro and broke a key level of .80 to the euro, leading to a terrible pricing environment for commodities, with oil plunging and gold declining.  The CRB index is down about 11% in 2012, highlighting deflationary pressure.  Interest rates plunged to generational lows, with the 10-year very near 1.5% as the month ended.  The month of May saw very little difference in the performance between smaller and larger stocks, but sector performance varied greatly.  Consumer Staples and Utilities were down just marginally, while Telecomm Services actually rose.  On the other hand, Energy fell double-digit, while Financials, Materials and Technology all declined by almost 8% or more.

If a month of "mayhem" wasn't bad enough, it looks like we are starting the new month with a "June swoon" following very weak jobs data.  As I type (it's about 9AM EST), the market is set to eclipse the lows of May by just a bit.  I have been looking at this correction as having the potential to test 1280 on the S&P 500, and perhaps even go slightly negative on the year to 1250.  At that low level, the retracement from 1422 would be 12%, still much better than the 20% moves in the prior two years.  Fiscal and monetary policy responses are somewhat challenging to envision at this point, but there are some potentially positive changes in response to the weakening employment situation.  The one that stands out to me is a more pro-growth political response from the Democrats, perhaps even an early addressing of the "fiscal cliff" at the end of 2012 when many taxes become reinstated and automatic spending cuts are scheduled to kick in.  While much of the focus has been on Europe, this is actually a bigger issue and not out of our hands.  Favorably,  we do remain above support, this looks like a correction still and the market is now somewhat oversold.  If the technical situation worsens, we will need to make some changes to the structure of the portfolios.

May was rough for all of the models.  Here is how we looked at month-end:

Top 20 is still ahead of the market so far in 2012, but it gave up 2.09% compared to the S&P 500, falling 8.09%.  For the quarter, it has dropped over 12% and trails by about 5.5%.  Looking at the performance on the month, we had two stocks fall more than 20% and another 9 fall by 10-20%.  While one rallied 32%, only a handful or so were able to perform better than the 6% decline in the S&P 500.  The weakest stocks were in the sectors I highlighted as the weakest:  Materials, Energy, Financials and Technology.   

Conservative Growth/Balanced declined 6.5% during the month, which was over 3.2% worse than the blend of stocks and bonds.  QTD, the 7.09% loss is 3.95% worse than its benchmark.  In addition to being underweight bonds, which had a 0.9% return during the month, and overweight stocks, some of our stocks performed poorly.  The stock/bond allocation accounted for about 1/3 of the performance short-fall.  5 stocks declined more than 10% (3 from Technology and 1 from Financials), while one Consumer Discretionary name actually rallied.  

Sector Selector ETF fell 7.98%, which was 2.47% worse than the S&P 500.  For the quarter, the 9.89% decline has trailed the market by 3.78%.  We were very poorly positioned here, with exposure to 3 of the 4 weakest sectors as well as Emerging Markets.  Interestingly, our precious metals ETF, to which we added during the month, was the best performer, ending slightly ahead of the market (the only ETF to do so).  

Clearly, I am disappointed by the near-term market action as well as the results.  I manage these models for the long-term focusing on a one-year horizon.  While I felt at the end of March that there was some risk in the market, we have done a bit worse than the 5-7% correction I anticipated.  I don't think that the rally that began in 2009 or the economic recovery are over, but I am cognizant of the many risks our economy faces.  Hopefully, the weak start to June puts us closer to the end of this correction.

 

Bounce Week

Stocks bounced, holding the lows from the previous week.  Here is how the models looked as of Friday:

Top 20 lagged, rallying 1.44% and trailing the S&P 500 by .44%.  The past couple of weeks, the model has tracked the market in an uncharacteristic manner - holding in during the big downturn in the prior week but rallying less this past week.  Additionally, Small-Caps had a pretty decent week, which usually would have helped.  Looking at the stocks, nothing really stood out, though there was considerable variation.  While the S&P 500 rallied 1.88%, we had 8 stocks decline (the worst was just 1.5%).   This is a bit strange quite frankly.  We had several stocks perform quite well, with 5 stocks rallying above 3%.   This has been a very tough quarter for the model, but it is maintaining a lead over the S&P 500 in 2012.

Conservative Growth/Balanced rallied 0.41% during the week, trailing its benchmark by 0.68%.  Encouragingly, our best stock was one of the ones to which we added early in the week.  Still, of the 15 stocks in the model, 13 increased less than the market.  The model's performance in Q2 (and especially May) has been weak, with the QTD return differential more than offsetting the strong Q1.

Sector Selector ETF posted a good week, rallying 2.19% compared to 1.88% for the S&P 500.  In contrast to last week's uniformly weak performances by the ETFs in the model, we saw reversal of negative momentum in one of the larger holdings (Small-Cap) and in one of the more beaten-down ones (Precious Metals).  The strengthening dollar has been a challenge for the model this month.

 

Outlook

 I don't have much of an update this weekend.  While it was encouraging to see the market bounce and get back towards the 1320-1350 zone that I had expected to be support for the S&P 500, we closed below it.  At this point, we are still in correction with no signal yet that the low is in.  I shared some levels that might be tested, including the possibility of a slight breach of the 2011 closing price of 1257.6.  Longer-term, I remain constructive, but, in the short-term, we are contending with some volatility related to Europe once again.  It's always hard to tell "what's priced in" , and the challenges to the global financial system are certainly out-of-the-ordinary, but we emerged from the 2010 and 2011 by printing new post-2008 highs both times.  The 2012 correction has been less severe (so far) and hasn't been nearly as volatile as the prior two years.  After two very strong quarters (Q4 and Q1), it's not at all out of the ordinary to retrace a bit.  We should get some news out of Europe in mid-June regarding the potential for a Greek exit from the Euro.  Until then, I expect that we could base between 1250-1280 and 1370.

 

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Have a nice long weekend!

 

Regards,

 

Alan Brochstein, CFA

www.InvestByModel.com

The Worst Week of the Year

The consolidation deepened this week, leaving all of the models down sharply as the market fell each day:

 

Top 20 moved with the market roughly, losing 4.44%, slightly worse than the 4.33% decline for the S&P 500.  So far this quarter, the model has lost 12.36%, about 4.5% worse than the S&P 500.  In May, the model has dropped 8.35% compared to the 7.26% decline in the S&P 500.  Performance this week was very mixed.  We had a few stocks up slightly or unchanged, but a few that were hammered, especially the energy company that we had reduced recently but also one other double-digit decliner.  Considering the relative weakness in smaller stocks, the model held up fairly well.

Conservative Growth/Balanced fell 2.15%, which was about .4% better than the index of stocks and bonds.  For the month, the model has fallen 6.12% compared to 4.24% for its benchmark.  The relatively good performance this week was due to the performance of two of the retailers in the model that happened to rise after earnings reports.  

Sector Selector ETF had another rough week, declining 5.3%, about 1% worse than the S&P 500.  So far this quarter, it has dropped 11.33%, 3.5% worse than the market.  The challenge this week was primarily continued weakness in Financials and Emerging Markets.  The precious metals-related ETF that we increased early in the week (a bit too early) was the best performer.  I maintain confidence in the structure of this portfolio over the long-term, but the performance has not been acceptable to me.   

 

Market Outlook

As seems to often be the case, the market has fallen a bit more than I had expected.  In advance of the peak, I had suggested a pull back of about 5-7%, suggesting a low of about 1320 on the S&P 500.  So far, the low has been 1292, or a decline of 9% (130 points from the 1422 intraday peak on 4/2).   All of the technical indicators that had me somewhat cautious near-term as we approached the end of Q1 have corrected.  At this point, the YTD rally is still intact, but the third straight year of extreme dislocation rearing its head in Europe remains a big challenge.  Certain barometers are concerning market participants, including the strength of the dollar, extreme weakness in commodities and a retreat in the value of high-yield bonds.  To be clear, none of these has moved to levels that makes me rethink my basic thesis (slow growth, improving valuation), but it suggests that the consolidation that began in early April is perhaps not fully played out.  The "Facebook Fizzle" , a relatively tepid response to a very hyped initial public offering, certainly isn't adding to anyone's confidence.  Today was an options expiration too, which can magnify market moves.  

My 2012 projection of reaching 1600 represented an aggressive 27% gain, or almost 30% with dividends.  Through Q1, we were well ahead of that pace (12.6% instead of 7.5%), but now we are certainly behind (3.76%, while on a linear basis we should be closer to 11.5%).  It's hard to believe, but just two weeks ago, we made a new post-2008 high on the Dow Jones and were very near the 4/2/12 peak on the S&P 500.  My point is that the market moves around a lot.  Today feels horrible, perhaps the inverse of as good as it felt at the end of Q1.  It's important not to get sucked into the emotions of the market, or you end up buying high and selling low, a sure recipe for long-term failure in investing.  I tried to sound a cautious alarm when things were heating up, but I surely underestimated how much the market could swing back.  Keeping things in perspective, we have retraced about 38% of the rally from early October to early April - this is quite normal.  A fair question is:  When should I get nervous?  Let's mark that as S&P 500 retracing more than half the rally - that would be 1248 (another 3.6%).  At that level, the correction would amount to 12.2%. 

Will we actually get there?   I actually would expect not, but it's possible.  That would pull the market to down year to-date on a price basis (but about unchanged with dividends).  In 2010 and in 2011, we had the market pull back almost 20%, so this would be less of a correction but still quite substantial.  Before 1250 area, I do see some support at 1280. 

 

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Have a good weekend...

 

Regards,

 

Alan Brochstein, CFA

www.InvestByModel.com

 

Sector Selector Trades

We are cutting exposure to a small-cap ETF that has actually rallied a bit more than the S&P 500 this year in order to fund our purchase of a precious metals-related ETF.  The ETF we are buying is very oversold at this point.  From a technical perspective, the action this past Wednesday suggests to me that the recent downtrend may be ending.  I was premature in adding this exposure to the model in Q1, but the sector offers the potential for both appreciation as well as diversification.  

The Week That Felt Horrible But Wasn't

For all the angst this week, which included concerns over Europe flaring up and a large one-time loss at JP Morgan, the markets were just slightly lower.  Here is how we look:

 

Top 20 had a lot of volatility among the constituents, with earnings reports driving the action.  We took a few big hits.   For the week, we declined  a little over 2%, which was about 1% worse than the market.  So far this quarter, we have lost 8.3%, which is 4.6% worse than the S&P 500.  For the year, we are up 10%, but it's disappointing to give up almost half of our Q1 gains.

Conservative Growth/Balanced also had a rough week, hurt by an earnings report as well.  For the week, we declined 1.7%, which was about 1% worse than the 60/40 stock/bond index.  So far this quarter, we have lost 4.7%, which is about 3% worse than its benchmark.  For the year, the return of 5% is now trailing the benchmark by about 0.9%.

Sector Selector ETF lost about 1.6% this week, underperforming by about 0.5%.  The weakness in Financials as well as continued poor action in Emerging Markets and Gold Miners weighed heavily.  For the quarter, the model is down 6.4%, about 2.7% worse than the market.  For the year so far, the 7.3% return is now a little over 1% behind the S&P 500.  

 

Market Outlook

It seemed like the shallow correction had ended, but the market actually extended it slightly this week, with the S&P 500 trading to a low of 1343 on Wednesday, 1% below the 1357 low in early April.  I am not too concerned, though it's not yet clear that 1343 will prove to be the ultimate low.  Recall that I was forecasting a 5-7% decline from the peak, and 1343 represents 5.5%.

I continue to believe that the pattern of the last two years will not be repeated, meaning NO SUMMER SWOON.  As much angst as there was this week, consider that at the lows we were down less than 2%.  Next week, Facebook (FB) will finally price, perhaps improving the psychology a bit.  While the quarter has been a real dog so far, especially for the models, it's important to put it into the context of the big rally from October through March.

 

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Have a great weekend, and Happy Mother's Day to our moms out there!

 

Regards,

 

Alan Brochstein, CFA

www.InvestByModel.com

 

May Day Mania, Friday Funk

The market spiked on Tuesday to begin the month and closed on the lows of the week after disappointing employment figures and concerns over elections in Greece and France, producing the "worst week of the year" for the S&P 500.  What a difference from last year, as we had DAYS worse than this WEEK.   Here is how we looked as of the close:

Top 20 declined 2.75% during the week and is down 2.08% in May.  The S&P 500 lost 2.42% for the week and is down 2.03% so far in May.  Smaller stocks certainly took their toll on performance this week.  We had our smallest position lose over 10% this week - we had trimmed it a week ago fortunately.  Beyond that one, though, we had lots of sharp declines.  Fortunately, the 33% increase in the stock we trimmed today offset almost all of the weakness.

I have to apologize for how I handled the trade today, though I spelled out the timing risks on the blog before the market opened.  In case you aren't familiar, I always share my rationale on trades in advance of the market open on the blog.  The stock traded much lower than I would have expected, though it closed near the highs and most of the volume was late in the day.  In retrospect, I likely should have just waited until Monday.  My intentions were good, but the outcome wasn't what I had expected.  

Conservative Growth/Balanced fell more than Top 20, which is quite rare.  For the week, it fell 3% and is down 2.35% so far in May.  Being overweight stocks and underweight bonds accounted for some of the poor performance, but many of the stocks were quite weak, especially Friday.  Four names fell more than 5%, and none rallied during the week.  

Sector Selector ETF lost 3.47% during the week and is down 2.85% so far in May.  The model is now down slightly relative to the market in 2012, which is disappointing.  The biggest challenges were weak smaller stocks and continuing weakness in gold stocks.  

 

Market Outlook

Some say "Sell in May and go away", one of those cute rhyming aphorisms that typically doesn't work but sure did the past two years.  I say "April showers bring May flowers", meaning that the fact we consolidated in April allows the rally to continue.  This week's action was somewhat disappointing, but let's keep in mind that we made a higher high and a higher low compared to last week.  

Unlike last year, we have easy comparisons for the second half of this year in terms of economic growth and corporate earnings.  We are almost entirely through an earnings season that offered fairly tough comparisons, and the results have been better than expected.  Most calls I have heard have been fairly optimistic with respect to the outlook for the rest of this year.  Of course, there is the big overhang of automatic budget cuts and tax law changes, though it's far from certain how it plays out.

In the meantime, we have the sexy Facebook IPO pricing in two weeks, and we also have a reasonable shot of having the Supreme Court throw out Obamacare in June.  As bad as things appear to be in Europe, with some economies in recession, the stock markets over there are telling yelling that it's a very shallow contraction.  I continue to think that stocks are a great deal and likely to do better this year.  I maintain my 1600 year-end target on the S&P 500, but I must admit that I am a bit concerned to see continuing outflows from equity mutual funds, something I will continue to monitor.

 

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Have a nice weekend and Feliz Cinco de Mayo!

 

Regards,

 

Alan Brochstein, CFA

www.InvestByModel.com

April Review

While I wasn't surprised to see the models give up some of their strong year-to-date gains, I was disappointed in any event.  For the month, there was somewhat of a reversion of prior trends as the market consolidated, with many strong performers giving up some gains and some laggards, like Telecom Services, benefiting from rotation.

Top 20 declined 4.4%, while the S&P 500 lost 0.63%.  This leaves the model up 14.66%, still well ahead of the S&P 500's 11.88% total return.  We held all 20 stocks in the current portfolio for the entire month.  Six of our stocks rallied on the month, two substantially, including our most recent purchase.  On the other hand, five names declined by more than 10%, all of which were what I would describe as profit-taking.  Three of the names are up still in 2012.  The worst performer is a name that we bought earlier this year that has continued to decline somewhat after rallying following our purchase.  In general, smaller stocks were weaker than larger ones, which hurt the model.  The bigger factor, though, was a lack of exposure to the more conservative sectors of the market, like Telecom Services, Utilities and Consumer Staples.

Conservative Growth/Balanced lost just 0.65%, which was 0.79% worse than the blend of stocks and bonds.  Year-to-date, the model is still 1.63% better than its benchmark.  During the month, the model was significantly underweight bonds and overweight stocks, which cost the model about 0.5% and explains most of the difference.  Looking at our names, the worst performance was in our Technology names.  Tech was one of the weaker sectors during the month.

Sector Selector ETF declined 2.07%, which was 1.44% worse than the S&P 500.  The model is up marginally YTD compared to the S&P 500, with a return of 12.24%.  Exposure to Financials and Small-Caps weighed on performance during the month.  Energy, which matched the S&P 500, was the best performing sector, suggesting that nothing really worked too well during the month.

Rally Reignites

Despite a bevy of bad news, the market managed to advance, coming within striking distance of the levels from the end of March.  Here is how the models look with one day left in April:

Top 20 rallied 1.93%, beating the S&P 500 marginally.   While we had our share of winners, we also had several stocks decline on the week (two in response to earnings reports, both of which we increased today).  After a very strong Q1, April has been disappointing, with several double-digit decliners hurting performance.  Of the five that have fallen more than 10%, only one is down sharply in 2012, while 3 are actually up still (two more than the S&P 500).  

Conservative Growth/Balanced also managed to perform slightly better than its 60/40 stock/bond benchmark, rising 1.26% compared to 1.16%.  The model has retained most of its YTD advantage and closed close to its best level ever.

Like the other two models, Sector Selector did slightly better than the S&P 500, rising 1.89%.  Financials and Small-Caps helped drive returns this week, though both have contributed to the performance short-fall in April.

Market Outlook

Last week, I suggested that the consolidation was ending, and Monday morning proved to be a good chance to buy as the lows of April were tested successfully.  Economic numbers were soft all week, and several earnings reports late in the week were less vigorous than the generally strong results we have been seeing, but the market managed a healthy gain nonetheless.  This type of action is quite encouraging.

I continue to think that 2012 will play out very differently than the prior two years, which both endured terrible corrections beginning in early May.  The consolidation of April has removed some of the overbought and overextended nature of the market, and it looks like the rally should power to new highs in the very near future.  I continue to target 1600 on the S&P 500 by year-end, which is about 14% above the current level.  Frankly, I'll be happy with 1500!  Smaller companies look poised to do even better than Large-Caps.  

 

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Have a nice weekend!

 

Regards,

 

 

Alan Brochstein, CFA

www.InvestByModel.com

Limited Lift, Consolidation Nearly Complete

The market has grown into its rapid Q1 advance, now down just slightly in April with just 10 days to go.  Here is how the models look as earnings season kicks into gear:

 

Top 20 suffered as the largest holding was pounded after lowering guidance (in what I view as an extreme overreaction) after the close Thursday.   For the week, the model dropped 1.26%, while the S&P 500 rose 0.61%.  A little over half the underperformance was related to the stock that fell on Friday, but several other names contributed negatively as well.  At this point, we have given up about 1/2 the YTD gains relative to the market this month, declining 5.55% compared to the S&P 500 declining 2.03% so far this month.  The Russell 2000 is off 3.11%.  After this pullback, I am less cautious than I was on the overall portfolio in late March after that huge Q1.

Conservative Growth/Balanced had an excellent weak, rising 1.65% compared to the 60/40 stock/bond index increasing 0.41%.  The outperformance of 1.24% leaves the model 0.44% under its benchmark this month.  

Sector Selector ETF rose 0.34% and ended up lagging the S&P 500 by 0.27% as Financials retreated.  So far this month, the model has lagged the market by 1.25%, mainly due to Small-Caps but also slight underperformance in most of the securities.

 

Outlook

 While the recent lows for April could prove to be the lows, we aren't yet out of the woods, as the market hasn't yet signalled an end to the consolidation that began a few weeks ago.  The recent action has taken a lot of near-term risk out of the market in my view, removing the labels of "overbought" and "overextended" from the huge run from early October into early April.  

This week's action was interesting in many regards, not the least of which was the fact the market rallied despite pressure on the largest stock, AAPL.  Keep in mind that AAPL reports Tuesday and could be a driver one way or the other.  It's very healthy to see the stock correct, now dosn over 10% since peaking earlier this month.  It's not exactly sustainable to have a single stock of that size providing significantly above-market returns, making it look too easy (like winning with "red" on roulette all the time).  

I also liked that Small-Caps seem to be bottoming too - they have performed poorly over the past year relative to the S&P 500.  After starting the year strong, they lost the lead, but they did pick up some ground this week after lagging in the prior few weeks.  I expect smaller companies to lead the way over the next few months.

Earnings season is off to a nice start, with large companies typically posting good results and increasing their outlooks.  Some of the high-fliers have tended to sell of modestly on the good news, but others have blasted ahead, like Microsoft today.  

Unlike 2010 and 2011, which both saw very sharp corrections after peaking in late April, we appear to be enjoying a different pattern this year, with an earlier peak but a much more modest pullback.  I think that the next big move is up.  I have shared some support levels previously, and 1320-1360 would be a great spot to add should we get there in the coming days.  

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Have a great weekend and don't forget to celebrate Earth Day!

 

 

Regards,

 

Alan Brochstein, CFA
www.InvestByModel.com