Removing my hedges and watching earnings closely – R. Moore

Author: Richard Moore

Covestor model: Market Comparables

Disclosures: None

Market action in June was mainly to the downside, but a big bounce at the end of the month helped to mitigate the damage. I had positive results for the month, as my hedged approach combined with a healthy cash position worked to my advantage.

Currently, estimated corporate earnings continue in an uptrend while valuation levels appear quite reasonable given the current level of interest rates. These fundamental factors are the most important components when making a judgment about future stock prices, and they remain bullish.  Second quarter earnings, due to be reported this month, will be important to watch.

Sentiment factors improved during the month, as prices declined.  Most small investors and speculators have become more cautious, but are not scared yet.  This factor is still negative, but it has definitely improved over the last couple of months.

The end of month rally brought the technical factors I watch back into positive territory.  Price momentum should carry the market higher in the short run.

Given this set of circumstances, I have decided to remove my hedges and concentrate on picking attractive investment opportunities.  I will, however, be maintaining a very substantial cash position until my sentiment indicators at least reach the neutral level.

It seems as though much of the potential negative news surrounding Europe and the U.S. debt ceiling has been discounted, and now second quarter earnings will be in the spotlight.  Reported results and expectations for the second half will likely have the most influence on stock prices going forward.