During this bull market:
Ratio of small caps to large caps: small caps outperformed early, till May 2010. Since then, performance has been roughly equal. On the next rally, if small caps outperform, that's bullish.
Ratio of consumer discretionary to staples: exact same pattern. On the next rally, if staples outperform, that's bearish.
Ratio of semis to pharm: Semi outperformance lasted a lot longer, till February 2011. But the under-performance since then has been dramatic. Semis are hi-beta consumer discretionary; pharm is lo-beta consumer staple. The ratio between them, tells us how defensive investors are feeling.
My guess, at which stocks perform best, for the next 18 months (with my QE3 caveat):
1. energy
2. large cap
3. dividend payers
4. defensives (consumer staples, pharm, trash haulers, alcohol and tobacco.)
I did a lot of buying 8/8-8/23/11, now down to about 40% cash. No shorts except Treasuries. No tech except INTC. Mostly energy. I'm a "weak hand", willing to sell all rallies. |
