Breakout

The Buying Stampede Is Ending: Saut

Jeff Macke
Breakout

There was supposed to a be a serious sell-off yesterday. JP Morgan (JPM) getting beaten like a government mule by the Senate on Friday combined with Cyprus' odd decision to start a run on its own banks should have given would-be dip buyers their long-awaited chance to put money to work on a meaningful pullback.

Instead, Monday was a a run-of-the-mill hiccup by 2013 standards with stocks closing down a mere half a percent, leaving the S&P 500 still up nearly 9% for the year. Jeff Saut, chief investment strategist at Raymond James, says investors shouldn't get too comfortable just yet.

"If we close down again today it would be three sessions in a row on the downside and that typically would break the back of the buying stampede and you would get a correction," he states.

Saut defines a buying stampede as a streak of up days with only one to two-and-a-half day pauses or pullbacks before extending higher. Today marks day 53 of the current run. The longest such streak Saut has seen in his 50 years of chronicling the market is exactly 53 days.

In preparation for better buying opportunities Saut is rolling out of the financial sector (XLF) and into tech (XLK). "Technology as a sector is more cheaply valued than utilities (XLU) which suggests that utilities are going to grow faster than technology and I don't believe it."

Saut has been in the game long enough to know that calling exact tops or bottoms is an exercise in futility. He never buys anything all at once, choosing instead to buy in 3 or 4 tranches. Buying and selling is a process, not a specific point. The game is to manage your emotions, your portfolio and especially your losses.

The typical pullback is 5 to 7%. From the recent highs on the S&P500, that gives a downside target of 1,453 to 1,484 in the relatively near term. As Saut sees it, a negative close today would be strong evidence that the correction phase has begun. The question for investors is whether they choose to try to trade it or just ride it out.

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