Friday, August 27, 2010

Stock Market at Critical Crossroad

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

As I mentioned last week, I am interested in doing an article on real estate and would greatly appreciate your help in answering a few very short questions for 30 seconds if you haven’t already done so. Please click on the link below. There are no right or wrong answers! I’ll report back next week on the results along with my opinion.

In a recent issue of Street$marts, I reviewed my long-term forecast for a stock market peak this summer, but expected at least another significant push higher this month. So far, that call has been a big dud with the market deciding to pullback 5% instead. As we enter the final weeks of traditional summer, the major indices find themselves at an important crossroad.

IF (intentionally capitalized) the stock market has at least one more good rally left, which I still believe it does, it should begin in the next week and have some fireworks associated with it. Stocks are oversold based on a slew of technical measures and sentiment is extremely bearish, which is contrarian in nature suggesting a rally. While I doubt it will be a "rising tide lifting all ships", it should be strong enough to see some sectors make new 2010 highs. In short, as I discussed at length this morning on CNBC, it's time for the bulls to put up, take the ball and run or risk getting mauled by the bear next month.

As I've mentioned before, I continue to find it very interesting and almost curious that high quality corporate bonds, low quality junk bonds and treasury bonds are all making new highs for 2010. This is very atypical behavior for any market, let alone one that is trying to peak. Although I am glad our various programs own all three, it doesn't make me comfortable that the financial markets continue to behave in very unusual and unorthodox ways.

Way back in January, in my "11 Shockers for 2010" I forecasted and expected that longer-term treasury bonds to be the surprise investment of 2010, much to the disagreement of my peers and members of the media. But I really never expected their performance to be as strong as it’s been (up 20% based on TLT), something that's beginning to worry me now, given their parabolic advance. I thought they would return somewhere in the single digits (and they still may if they decline from here), while most other assets struggled along. Their near vertical ascent over the past month based on a dying economy with deflation has the smell of at least short-term trouble brewing sooner than later for treasuries.

Feel free to email me with any questions or comments at

Until next time…

Paul Schatz

Heritage Capital LLC

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