We are seeing a gap between where the market ought to be, based on the improving economic fundamentals, and where stock prices are going. Much of our research as it relates to the economy has been improving for several weeks, showing that future economic reports will surprise many investors on the upside.
However, these improvements have not been reflected in the performance of the market. After making huge gains in March & April, the stock market has been moving sideways for the last two months. The technical internals of the market have actually been deteriorating as the leading economic indicators have improved. Negative technical signs that we have seen include: declining volume, a decreasing number of new buyers, an increase in the number of sellers, an increase in the ratio of declining to advancing stocks, an increase in downside volume, and money flowing out of stocks and into cash & treasuries.
The market has factored in the fact that the economy is getting worse at a slower pace ("less bad" as the media reports it), but has not yet accepted that the economy will actually improve.
Eventually, this gap will be resolved by the market. This will be a mid-term phenomenon that will play out over the next few months. In the short-term, we're building cash and locking in profits that have been plentiful in 2009 if navigated properly. As the doubters sell stocks and take profits, we'll be there to buy those same shares at discounts.
We'll be showing you the specific trades we're making right now to profit from these unprecedented times.