A "stoopers' market"?

Jeffrey Saut, the chief investment strategist at Raymond James, writes a very insightful column on US stocks every week (go here). If you are interested in tracking US stocks, you should not miss his column. His column dated May 21 is no exception. Entitled "Special Strategy Alert", Jeffrey is of the opinion that "the equity markets are forming at least a near- to intermediate-term TOP" and that we should be cautious. He feels that the US stock market is presently a "stoopers' market". What does he mean by "stoopers' market":

Yet the current environment feels like a “stoopers’ market” to us. Verily, I first heard about “stoopers” when I accompanied my father to a horse racetrack in Northville, Michigan. I was young and the time between horse races was some 30 minutes, which was pretty long for an eight year old. Consequently, while the adults were contemplating the “betting odds” of the next race, I was watching the “stoopers.” Subsequently, I asked my dad, “What are the people doing that are bending over and picking up the castaway betting tickets that litter the floor?” His response was, “They are called stoopers and they are collecting the discarded betting tickets in hopes that some unknowing soul will throw away a winning ticket because he/she doesn’t understand the intricacies of betting.” And that, ladies and gentlemen, is what the current stock market environment “feels” like to me – a stoopers’ market – in that most of the participants that missed the “lows” back in early March are now bending over looking for the “winning tickets” the unobservant players have missed. The only problem is the observant players have already made their money and have hedged, or sold, their gains in anticipation that the “easy money” is over.

Regrettably, that is where we find ourselves. For example, our recommendation of restaurant analyst Brian Elliott’s “scorched earth” portfolio in early March has gained more than 100%. Therefore, we have advised those folks that heeded that “buy recommendation” to sell half of said portfolio to realize those gains; and, then NOT be afraid to be right on the remaining half of that four-stock portfolio’s ability to potentially achieve another 100% gain. Unfortunately, too few investors listened and only now are looking to lever portfolios into “long” positions. And all we can say to that is that if you are going to buy something right here, only buy partial positions, and then only buy something that is unlikely to hurt you too badly if the equity markets correct by one-third.

Jeffrey had expressed a sentiment that is widely shared by most fund managers & investors who have been scouting around for good stocks as the market rallied higher. The truth is most stocks are no longer trading at cheap valuation, nor are they trading at their fair value. At the current stage of economic recovery, I do not believe that shares should be trading at their fair value just yet.

Meanwhile, we shall note that the technical readings are still positive; albeit bearish divergence is seen between a rising KLCI & a declining volume. Jeffrey's advice on taking some profit is sound. Equally sound is his advice to those who are trying to get into the market now, i.e. to select good defensive stocks that should weather a downturn in the market. The emphasis (in Jeffrey's recommendation) is mine.


Chart: KLCI's daily chart as at 25/5/2009 (Source: Tradesignum)