“Don’t Just Do Something, Sit There.”
February 11, 2013
by Jeffrey Saut, Chief Investment Strategist, Raymond James
“Don’t Just Do Something, Sit There” is the title of a book written by Sylvia Boorstein. I was reminded of the title when I received the following email from a financial advisor at another firm last week:
“Hey Jeff, not only do my clients want me to ‘do something,’ now I am starting to get the feeling I should do something. My shopping list of stocks to buy for the ‘consolidation-pullback’ is up 20%+ over the past five weeks, yet I have not bought any of them despite the fact I have plenty of cash on the sidelines. Now, the next pullback should be higher than where I started waiting for a pullback two weeks ago. For my active accounts, I’ve actually raised a little cash on every step to the upside, but have been holding back on that strategy this week. When my clients start calling ME to talk about what stocks to buy it makes me nervous and I start to get more cautious. Please remind me not to do something just to do something, to be patient. Regrettably, I’m starting to feel like an underperforming hedge fund manager.”
It is typical to hear such laments at this stage of a “buying stampede” as the outs want to be in for the presumed next leg of the rally. Unfortunately, today is session 28 in the typical 17- to 25-session duration of a “buying stampede.” As stated last Monday:
“Such skeins only have one- to three-session pauses or pullbacks before they exhaust themselves on the upside. While a few have lasted for 25 – 30 sessions, it is very rare to have one last for more than 30 sessions. That said, this one feels like it will extend toward the State of the Union address slated for February 12th. That address will likely be viewed negatively by the equity markets, which should serve to finally bring about a 5-7% correction. How the stock market reacts following such a pullback will tell us a lot about the market’s future direction.”
Indeed, I have written that if I could script what the markets were going to do it would be for the D-J Industrial Average (INDU/13992.97) to confirm the D-J Transportation Average’s breakout to new all-time highs with a new all-time closing high of its own. That would require the Dow to travel above its October 9, 2007 high of 14164.53, which is only 171.56 points away. If that happens, it would break the stock market out of its 13-year wide-swinging trading range, much like what occurred in August of 1982 following that 17+ year wide-swinging trading range market so often referenced in these missives. Likewise, it would clear up any doubts about a Dow Theory “buy signal.” Such an upside confirmation would also reinforce my sense that we are potentially in a new secular bull market.
With the thought of a new secular bull market in mind, I went back and studied my notes from August through November of 1982, which was the “lift-off” phase of a new secular bull market that would last until the spring of 2000. Accordingly, the sideways, wide-swinging stock market of 1965 – 1982 ended on August 9, 1982 with the Dow at 780.34. From there it went into a 20-session “buying stampede” that would leave the senior index 18.5% higher before peaking at 925.13 with a subsequent 3.7% pullback lasting 20 sessions. The second leg of the “lift-off” phase began on September 30, 1982 and took the Dow up another 14.7% where it challenged the then all-time high of 1051.70 made in January of 1973, coincident with the peaking of the nifty-fifty stocks. The Dow did not make it through that level on its first try, but after regrouping for seven sessions, the upside breakout was complete and the rest of the story is history, as can be seen in the chart on page 3.
