The Perfect Time for a Pause?

Tuesday afternoon, as I called money manager contacts for reactions to the new market highs set in a decidedly low-volume move, I wasn’t too surprised to find a number of people out of the office. It’s a holiday-shortened week in the U.S., and kids just got out of school. So I can understand why decision-makers were unavailable, as a good number of the main ones I know are taking days off this week.

That said, it seemed strange as I made my calls that offices seemed so quiet. But then in addition to the holiday, there’s a World Cup match involving our U.S. national team, right? Perhaps we could assume that traders had essentially called it a week after the indices broke into new-high territory with the boss out of the office. And, aided by the patriotic duty to “ghost town” the office just before the all-important kickoff of the U.S.-Belgium match, we could possibly expect trading conditions Tuesday afternoon to be challenging (in terms of finding a counterparty at best price theoretically possible).

But I look at it a different way: They didn’t leave because of the holiday, or because of the World Cup, they left because there was just that much work to be done, so why not call it a week and go away?

Many Wall Street decision-makers took off this shortened trading week.

I’m not saying that there’s nothing going on at all, that you should head straight for the hammock. I don’t expect summer investing to seem as effortless as the upwardly drifting scenario we’ve seen so far in 2014. We have had conflicting news come in regarding the economy over the past few months, as well as a downwardly revised view for corporate profits to come in the second-quarter reporting season (starts in about a month).

The Weiss Ratings have, as I’ve mentioned before, urged caution at certain points of this general run-up. Many market pundits credit unprecedented levels of central bank intervention — not just flooding the market with liquidity, but with the associated low interest-rate environment, as a major component of positive stock-market sentiment. Others (bulls, like myself) suggest that the continuation of last year’s solid bull market is justified as a matter of course, because despite bumps in the road, economic recovery is at hand, or nigh on hand.

You know, maybe it’s best to scout out a good place for that hammock and sit this week out after all. This is a perfect time to reassess your goals and strategies and set your agenda for the second half. It’s not just an academic exercise — determining what you want to achieve and how much time and money you’re willing to risk can be an important element to your investing.

Looking at specifics, there are some really undervalued stocks out there right now, and some fully valued ones that could continue their recent runs for some time. How do you spot them? I use the power of a successful quantitative model to help break out areas of opportunity, and sometimes those opportunities are more fleeting than others. But the fundamental thinking revolves around identifying stocks with strong long-term fundamentals that don’t necessarily have a following or buying interest from the investment community.

On that last note, the Weiss Million-Dollar Ratings Portfolio is currently making a play to add exposure in economically sensitive sectors, as I’ve indicated in these pages for some time. I’ve taken my time only because I think in a lot of cases where the market just drifts up, there’s really “nobody home” with regard to trading action. In short, sometimes the machines “wag the dog.” I think that’s what we’re seeing in this week’s trading, and I’d look for any anomalies to be reversed as early as Monday morning.

If you’re nervous you’re holding some positions that are a bit risky, think about that on the hammock. If you can’t hold still, maybe it’s time to make some changes

Best,

Don Lucek