Bull Market Needs a Psychotherapist

March 5, 2012

According to Bloomberg Businessweek, this bull market has serious self-esteem issues.  We are almost exactly three years from the March 2009 low, but fear of the market still has not worn off.

Next week marks the third anniversary of the current bull market cycle in U.S. stocks. Back on March 9, 2009, a day not easily forgotten in the annals of wealth destruction, the S&P 500 sank to a 12-year low of 676, the bottom of the worst bear market since the Great Depression. Since then, the S&P has more than doubled.

Investors for the most part are still curled up in the fetal position, preferring to put their money in bonds and money market accounts rather than stocks. Investors have pulled more money out of  U.S. domestic mutual funds than they’ve put in for five straight years.

Imagine how investors would be behaving if the market had a 100% run in three years without a bear market in front of it! Investors would probably be cashing in their bonds funds to buy stocks like there was no tomorrow. Investors are still carrying their bad feelings from 2008-2009 with them. One of the advantages of a systematic investment process is that feelings are not incorporated into it—the only thing factored into the investment decision is the relevant data.

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Weekly RS Recap

March 5, 2012

The table below shows the performance of a universe of mid and large cap U.S. equities, broken down by relative strength decile and quartile and then compared to the universe return.  Those at the top of the ranks are those stocks which have the best intermediate-term relative strength.  Relative strength strategies buy securities that have strong intermediate-term relative strength and hold them as long as they remain strong.

Last week’s performance (2/27/12 – 3/2/12) is as follows:

High relative strength stocks outperformed the universe last week.

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