Happy New Years! Since our last update, the stock market has advanced smartly with all three of the major indexes, the Dow Jones industrial Average, S&P 500, and the Nasdaq Composite, making new long term highs. The Russell 2000 Growth Index, which is most closely related to our investment style, fell just short of its all time high. Unfortunately, some of the key ingredients needed to have a sustainable move higher were not present. Leadership was relegated to a small number of overly popular stocks. The advance- decline, a measure the number of stocks closing higher per day vs. those lower, was not impressive. Lastly, the advance didn’t include the expanded volume you would like to see. Since then, the short term trend has turned down, led by the collapse in oil prices which is perceived by many as an early sign of a pending global recession. This week’s sharp upside reversal was impressive; however, two days does not an uptrend make. For now, the short term trend remains down. We continue to hold cash and will avoid making new purchases until a new uptrend is confirmed.
While it is tempting to wade into the energy sector, we think it would be premature, as there is no technical evidence that the low is in. The semiconductor manufacturing sector is gaining momentum and is a sector we are looking at to increase our allocation in when the trend turns up. Patience is a virtue.
Disclaimer: Rocket Capital Management is a registered investment adviser. The comments presented do not constitute personal advice and are not intended to be a solicitation for the purchase of any individual securities or investment strategies. All investing involves risk. Please consult with a registered adviser before making any investment decisions.