We have seen the US stock market the S&P and Russell fall over the last week or so………and out march the bears in full force! In fact the S&P has only really fallen over two days (Monday and Tuesday of this week). If the bears have come out of hiding and only after a fall from 950 to 915 how passionate would they become if the S&P was to fall to 890? Our feeling is that the bears are too quick to come out of hiding, there is too much disbelief that the market can go higher……which suggests to us that is where the S&P will go – disbelief is the path of least resistance.
Of course there is another reason why we are refraining from walking with the bears. Look at the rate of change of the Emerging Market Bond funds and High Yield funds below. These “risky” mutual funds have barely weakened over the last week. Until we see clear evidence that emerging market bond and high yield funds have fallen over we will stay on the long side of equities.
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