Strategist Jeff Saut Cautious On Market, Still A Buyer On Dips ~ market folly

Wednesday, January 5, 2011

Strategist Jeff Saut Cautious On Market, Still A Buyer On Dips

It's been a long time since we last checked in on market strategist Jeff Saut's commentary and figured the new year would be a perfect time to do so. In short, he is currently cautious on the stock market, wary of a repeat of January 2009. So, why is he cautious?

Saut writes, "in the short-term, the odds are not tipped decidedly in investors' favor, at least not by the metrics I use. Indeed, the Volatility Index (VIX/17.75) is down to 'complacency levels' last seen in April right before the 17% correction. Ditto, investors intelligence data shows advisory sentiment approaching the bullish extremes of October 2007."

Simply put, he feels that investors have become complacent and bullish sentiment has skied high, something he is using as a contrarian signal. But while the market strategist feels that stocks are due for a pullback, he is a buyer of those dips.

One thing we've noticed is that Saut has often been correct in his past calls, so kudos to him for utilizing timing signals such as volatility, sentiment levels, and overbought/oversold metrics. At the same time, he is often early with his calls and he freely admits this in his latest market commentary. After all, momentum and bullish sentiment can last much longer than many anticipate. It's a tough train to jump in front of.

For instance, back in late October, Saut called for a pullback (which he also saw as a buyable dip). What happened? The market saw a nice pullback... but not until a few weeks into November. Followers of Saut's prescient call (dip buyers) would have made a pretty penny on that trade.

Saut by no means is recommending a massive short position here, but it does seem as though he advocates taking some profits, raising cash, and preparing for a near-term correction that can eventually be bought as the new year begins. Embedded below is Saut's latest investment strategy piece entitled, 'The White Hurricane':

You can download a .pdf copy here.

For interesting past missives from the market strategist, check out Saut's businessman's risk portfolio, as well as his risk management principles.

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