The second quarter of the year has now come and gone and the Summer of 2011 is in full swing. It is all that we can do these days to stay cool as the thermostats continue to rise. For some this means spending the afternoons floating in the pool, stretched out in front of the AC, or perched up a few thousand feet in the cool mountain breeze. There are a variety of ways for staying cool in the summer months, but in order to achieve your goal of staying cool you must be proactive. The same holds true for managing risks in the stock market. There are many positive signs taking place in the equity markets right now and I wanted to take a minute to update you on some of the things that I see taking place in the market right now. For starters, one of the indicators that I follow regularly is the NYSE Bullish Percent, which is simply a measure of supply and demand in the marketplace. The most recent change in the indicator suggests that, generally speaking, demand has regained control, which is a positive sign. A change in this indicator directs us to shift focus to that of accumulating wealth instead of wealth preservation. Therefore, you might notice some changes taking place in your account in order to take advantage of the opportunities that exist in the market right now. With that said, here are some of the themes that are shaping up in this market.

  • After a review of the historic “summer” returns of the equity market to determine if there is a bias towards the annual “Summertime Blues” or “Dog Days of Summer” argument that is often applied to the market we find that over the previous 30 years, 13 summers (or 43%) have been losing summers for the S&P 500 (12 for the DJIA). We do not have a crystal ball to know how the rest of the summer will unfold, but it is interesting when we look at those summer months that have seen a decline, the vast majority of them came when the NYSE Bullish Percent was declining. As I mentioned above, the most recent movement in the NYSE Bullish Percent was back to positive, which suggests a better risk environment for stocks.
  • Nearly 70% of all stocks trading on the New York Stock Exchange are in a positive trend today, which is to say that the majority of stocks continue to show positive trends. I should note, also, that all of the major equity indices continue to trade in a positive trend, which is another positive sign for the market.
  • Focusing within the Domestic Equity arena, the Smaller and Medium sized companies (and stocks) continue to assert themselves as leaders over the larger stocks, and thus present greater potential capital appreciation. Consider this, the vast majority of equity indices peaked back in October of 2007 before enduring the subsequent bear market in 2008 and the first part of 2009; however, while the Large Cap indices have yet to recover from their bear market losses, the Small Cap indices are perched above their 2007 levels this month. The S&P 500, the most widely followed stock market index comprised of mostly large stocks, is roughly 15% below where it peaked in October 2007 while the S&P 600 Small Cap index is more than 7% above those 2007 highs. This is to say indices with a bias towards smaller stocks are moving to new all-time highs.
  • Opportunities in the Commodity market continue to look attractive versus other, more defensive, asset classes. Specifically, the Precious Metals space, such as Gold and Silver, continue to exhibit positive relative strength versus other areas within the Commodity space; therefore, we are going to focus our Commodity exposure on this area first before looking for other areas of strength within the Commodity space.
  • The US Dollar continues to trade in a long term negative trend, and while the US Dollar has seen a bounce off its April 2011 low, the US Dollar remains about 15% below its June 2010 peak. All in all, the picture for the US Dollar is not a healthy one. As a matter of fact, there are a number of other currencies that look attractive here like the Australian Dollar and Swiss Franc to name a couple.

We have no way of knowing how this offensive possession will play out. Ideally, we keep the offensive team on the field for a long, sustained drive. We are not going to anticipate when we think the market rally has exhausted itself; rather, we will let the market tell us when the time is right. Until then, I will continue to diligently review your account making the necessary adjustments to position your account in the right direction. Additionally, as this offensive session progresses, I will be monitoring the overall market, looking for any other potential areas of leadership. We will adhere to both the buy and sell side of our decision making process and let the discipline successfully navigate this market. If you have any questions regarding these strategies, or any other strategies for that matter, feel free to contact me and I would be happy to discuss them in further detail with you. In the meantime, kick back, relax and enjoy the rest of the summer.

William E. Riley, MBA,CLU,ChFC,WMS


About billriley

Chief Executive Officer, Chief Compliance Officer A co-founder and shareholder, William Riley is a 33 year industry veteran, who observed, many years ago, that over time institutional investors typically outperform individual investors while accepting less risk. In his role as Chief Executive Officer, Bill works tirelessly to make the wealth management strategies used by the world’s wealthiest families and largest institutions available to our firm’s individual clients. Bill combines fundamental and technical analysis to minimize investment portfolio risk and maximize potential returns. He uses a variety of non-correlated asset classes, including alternative investments, to minimize portfolio volatility and seek absolute returns in down or flat markets. Finally, Bill believes in a comprehensive approach to wealth management that fully coordinates and seamlessly integrates portfolio management, risk management and asset protection, trust, estate, tax and charitable planning. Prior to co-founding Riley Wealth Management ,LLC, Bill held management positions at Merrill Lynch, UBS, Raymond James, Paine Webber and J.C. Bradford. Bill founded Fort Worth branches for Raymond James and J.C. Bradford. Prior to entering the financial services industry, Bill ran his families closely held businesses. Bill’s experience operating family businesses combined with his wealth management experience makes him uniquely qualified to advise entrepreneurs and business owners on a variety of matters including complex and sensitive issues relating to business succession. Bill’s degrees and designations included a Masters Degree in Business Administration (MBA), the Chartered Financial Consultant designation (ChFC), the Chartered Life Underwriter designation (CLU) and the Wealth Management Specialist designation (WMS). A Fort Worth native, Bill is a TCU alum and active in many civic and charitable organizations. Bill and his wife, Marsha, now reside in Colleyville, and they have four grown children and four grandchildren. When he is not working on portfolios or studying financial markets, Bill can be found on the golf courses of Ridglea Country Club.
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