Ramping Up Our Defense

We’ve been looking for short-term strength in stocks ahead of a decline over the summer, but the short term is draining away quickly without much stock strength to report.

Several factors suggest that a market breather is in order. The effect of stimulus is wearing off as shown by tapering earnings growth at companies, a still moribund housing market, and tempered economic data. Plus, the Federal Reserve is preparing to wind down QE2, which has provided upward pressure for the past half year. Moreover, the bull market was a farcical affair all along, goosed by unsustainable liquidity and shady “booster buying” whenever downturns appeared imminent.

Turning to market internals, we looked last Sunday, May 15 at how cyclical sectors such as financials and technology have taken a backseat recently to defensive sectors like healthcare, consumer staples, and utilities. “That switcheroo is a red flag” signaling defense to be the watchword of the day, I wrote. That persisted last week. The weak-dollar-boost is waning for cyclicals while defensive sectors increasingly top analyst buy lists. Such patterns coincide with economic weakness and, ta-da, that’s what last week’s economic reports delivered.

Thus, we’re ramping up our defense.

To see our approach to guarding profits and track the stocks we want to buy once prices get cheaper, please subscribe to The Kelly Letter.

This entry was posted in Stock Market Forecasts. Bookmark the permalink. Both comments and trackbacks are currently closed.
  • The Kelly Letter
    A Complete Investment Management System
    The Kelly Letter  every Sunday morning by email.
    Like no other. Many subscribers say this is the best read of their week, astonishing in its ability to distill seven days of noise into one succinct overview of the very few items that might matter. Start your Sundays right!
    A one-page Quick Start Guide
    with page number references to full information in The 3% Signal. You'll receive access to this right away so you can begin transforming your portfolio into a performance machine immediately.
    The 3Sig Calculator.
    A thing of beauty! You'll use it to generate your own personal signals every quarter including exact share amounts to buy and sell based on your account balances. It emails you the results to make later quarters easy by keeping last quarter's numbers at your fingertips. Some subscribers say this tool alone justifies their subscription price.
    The subscriber-only section of this website
    where likeminded investors are commenting on notes and discussing in forums. Jason joins these interactions every day. They're a treasure trove of investing tips and wisdom.
    The archive of Kelly Letter notes.
    It’s a research center, searchable and smartly tagged to make gathering time-stamped material on covered subjects easy.
    The subscriber podcast.
    Jason reads every letter word-for-word. This feature was requested by subscribers who prefer audio learning. They listen on their Monday morning commute, during a workout, or while reading along at their computer.



    $200/year
    Save 17%



    $20/month
    Pay as you go
    Or sign up to receive free email and learn more about the system.
Bestselling Financial Author