Author: Capital Ideas
Covestor models: Macro Plus Income and ETF Only
Disclosures: Long CASC, MDY
Recent price action is eerily reminiscent of June 2010. As the margin calls continue and liquidation forces prices below support levels, all the talk is turning to the head and shoulders break down of the market averages.
This, I believe, is the perfect time to get greedy. As Warren Buffett says, be greedy when others are fearful. And at the moment there is certainly plenty of fear to go around. Being contrarians, we recently added to our holdings.
In the Macro Plus Income model we bought more Cascade (NASDAQ: CASC). This is a great little company with earnings that in our opinion could justify much higher prices. Though the consumer economy is slow, we believe this company’s products will remain in demand by materials-handling companies worldwide.
In the ETF Only model we committed the balance of our cash to the S&P 400 Mid-Cap Index fund (NYSE: MDY). We still believe the domestic market will outperform the overseas markets during this time of economic uncertainty.
This may not be “the bottom,” but we believe the market is potentially sold out. Our indicators on moving averages and buying interest suggest a correction in an ongoing bull market, rather than the start of a bear market. Given this, in conjunction with many other indicators we follow, we believe the situation to be similar to the June/July period of 2010. Then the market broke a head and shoulders formation and declined a little more before mounting a substantial rally. We are adding to our positions in the hopes that the outcome will be the same.
