This is from last week's commentary. It appears clear now the
the "Bad News" scenario is playing out . We moved out of
technologies on Tuesday and have remained in financials,
medical, and cash.
Russell Cox
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The Select Investor Weekly Commentary July 21, 2000
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The Good News
After this roller coaster week, our portfolios held
their value quite well and the charts for our
sectors still look surprisingly strong.
Unfortunately, there are still two diametrically
opposed interpretations of the current state of the
markets : this week was the volatile beginning of a
strong Summer Rally vs. this week was the last gasp
of the June - July Rally.
On the positive side, many market timers and
analysts are calling for a strong Summer Rally to
unfold over the next few weeks. It is easy to
support this theory. The recent fall in the NASDAQ
could simply be a retest of the 4100 level before
moving back to the top of the trading range,
Thursday's upswing was stronger than Friday's
downturn, suggesting that investors would rather
buy than sell. Few of the strongly trending sectors
broke their trends.
So, the upward momentum has not been broken, and
this week's action was simply a normal heathy
pull-back before an advance to new highs.
The Bad News
On the Negative side, it is also easy to see this
week as the classic end to the historical June -
July Rally. The NASDAQ peaked on July 17,
coinciding almost exactly with the last day of
pension fund contributions. Even though there was
no sustained rally in June and July, the NASDAQ was
up about 25% from the May 30th bottom. This move
matches the historical parameters for a June - July
rally.
So if we have seen a classic June - July Rally, we
should see a classic August collapse.
What this Means for Us
This state of affairs demonstrates why a purely
mathematical approach to investing is not very
effective. A mathematical model would have to pick
the good news, the bad news, or give no guidance at
all. In any event, there is a strong chance that
the model would be dead wrong.
We have positioned your portfolios to straddle
either the good or bad scenario. If the markets
rally, you are positioned in strongly trending
sectors that should do well. If the markets begin
to collapse, they should first rotate into the
newly favored sectors, giving you a pop, or at
least a cushion, as we exit the markets.
The ability to straddle an uncertain market like
this is one of the main advantages of a diversified
sector investment strategy.
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The Select Investor
Using the Power of Sector Investing to Provide You
Security with Performance.
selectinvestor.com
investor@selectinvestor.com
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