Strategist Jeff Saut: Same Recession "Head Fake" Third Year in a Row

Market strategist Jeff Saut is out with his weekly commentary entitled "Cognitive Dissonance."  He titled his piece as such due to certain economic readings softening while others strengthened.  Saut also addresses how it can often pay to go against the crowd, likening the current market action to that of the past two years.

He argues that just like the past two years, the markets have peaked in May/June and will decline for a few months before surging higher into year-end as no evidence of a recession emerges.

However, Saut isn't sure if the current decline is over yet.  He won't be completely comfortable until the S&P 500 breaks 1366 to the upside and holds it (it's currently around 1358).

In the mean time, he's been recommending slow accumulation of select stocks such as decent dividend payers like Allstate (ALL), Covanta (CVA), Johnson & Johnson (JNJ), Plum Creek Timber (PCL), Rayonier (RYN) and Stonemor (STON).

And on the topic of cognitive dissonance Saut writes, "in order to reduce the anxiety of decision making, people perceive things in ways that may or may not be logical.  Simply stated, people talk the way they bet.  From a stock market perspective this means that the interpretation of economic and market news varies in direct relationship to the investor's bullish, bearish, or cautious market position."

Embedded below is Jeff Saut's latest commentary where you can read why he thinks this year is just like the past two:



You can download a .pdf copy here.

For more from the strategist, we've also highlighted some of his rules for position sizing as well as profit-taking and loss prevention.

Jeff Saut: Buying on Weakness

Jeff Saut, Chief Investment Strategist over at Raymond James, is out with his latest commentary entitled 'Don't Worry, Be Happy.' In it, he opines that while money does not equate to happiness, the stock market was certainly happy last month as it increased 7.0% after being down 8.2% in May and losing an additional 5.4% in June. Last time around, Saut argued that it might be time to re-balance portfolios and laid out a theoretical businessman's risk portfolio.

Saut pats himself on the back for 'calling the rally' that he expected due to oversold conditions at the beginning of July. Recently, a Dow Theory Buy Signal was registered according to the market strategist as both the Dow Jones Industrial Average and Dow Jones Transportation Average closed above their previous June highs. However, this signal comes after an already powerful rally has taken place and numerous other theorists do not think a signal has been registered in the true sense of the definition. This would require a close above 11,204 on the Dow Jones and above 4,806 on the transports.

That said, Saut is now a buyer on weakness. He issues a caveat with that statement saying he will use fairly close stop loss triggers to manage the risk. As we've detailed recently, Saut has outlined his risk management principles and has also argued that risk adjusted stock selection is the key to success.

So, what stocks to buy on weakness? The Chief Investment Strategist feels that the following stocks are solid choices:

Value Picks:
Microsoft (MSFT)
Intel (INTC)
Wal-Mart (WMT)
Allstate (ALL)
Johnson & Johnson (JNJ)

Growth Plays:
McAfee (MFE)
Iridium (IRDM)
NII Holdings (NIHD)
Nuance (NUAN)
Parexel (PRXL)

As you can see, Saut favors many high quality blue chip names on the value side. This is exactly what we saw this morning as Jeremy Grantham favors high quality US stocks. Additionally, we've detailed hedge fund T2 Partners' bullish presentation on 3 large cap stocks.

Overall, Jeff Saut thinks that the 200-day moving average (overhead resistance) will be taken out. And as of this second, that's exactly what's happening. We'll have to see if the market can hold and close above that level. He ends by quoting Lowry's who writes,

"In summary, as the major price indexes have moved sideways since the May 25th low, market conditions have showed clear signs of strengthening, not weakening. While overbought readings on short-term indicators suggest the potential for a near-term pullback, any decline should act only as a temporary setback in the rally from the July 2nd low and is unlikely to represent the next leg of a more prolonged move lower."

Embedded below is Jeff Saut's latest investment strategy from Raymond James:



You can download a .pdf copy here.

Here's the rest of our 'market-strategist-Monday' pieces if you missed any of them:

- Oaktree Capital's Howard Marks on the greek tragedy
- PIMCO's Bill Gross: latest investment outlook
- GMO's Jeremy Grantham favors high quality US stocks

Market Strategist Jeff Saut on Risk Management Principles

Market strategist Jeff Saut is out with his latest investment commentary entitled, "Don't bet the farm." In it, he lays out some basic risk management principles. The first of which, obviously, is to not bet the proverbial farm on any one scenario, no matter how good it looks. Managing downside risk is the key to success in markets. Louis Bacon, famed hedge fund manager at Moore Capital, will be the first to tell you that. Saut also believes that portfolio rebalancing is one of the tenets of successful investing. This whole conversation is an extension of his commentary last week where proclaimed risk adjusted stock selection is a key to portfolio success.

You can read his entire investment strategy for the rest of his thoughts on risk management but we wanted to touch on his latest market thoughts as well. Saut highlights an excerpt from Lowry's Selling Pressure Index, who writes, "When selling pressure begins to consistently contract, despite new los in the major indexes, such a divergence usually indicates the desire to sell has been largely exhausted; and, the end of the decline may be near at hand." That would certainly prove to be the case (at least in the near-term), given that the market rallied 200 points on Thursday.

The Raymond James Chief Investment Strategist continues to watch the S&P 500's 200 day moving average with a watchful eye. Saut feels that until a breakout to the upside of this level occurs(around 1,112 on the S&P), he is quite happy to remain flat in trading accounts and to position favorable stocks in investment accounts. He continues to pound the table on large cap blue chips such as Walmart (WMT), Intel (INTC), Enterprise Products Partners (EPD), Allstate (ALL) and Microsoft (MSFT). One thing's for certain: many smart investment firms advocate buying high quality stocks as of late.

Embedded below is Jeff Saut's latest weekly market commentary:



You can download a .pdf copy here.

Be sure to also check out Saut's previous thoughts on risk management and keys to portfolio success in 2010.

Jeff Saut: Risk Adjusted Stock Selection & Risk Management Are Keys to Portfolio Success in 2010

Raymond James' Chief Investment Strategist Jeff Saut has penned his weekly market commentary and in it he examins the possibility of the dreaded double-dip recession. Many economists argue that the recession ended around this time last year. Saut proceeds to examine the possibility that these economists are wrong in an effort to gauge the possible worst case scenario. He outlines the fact that 3 out of 38 recessions have qualified as double-dips since 1880. In practically all of those cases, the first recession was 'mild' and then the double-dip was quite harsh. Saut argues that we aren't in for the dreaded DD because the recession we just experienced was anything but mild.

Pursuant to his take on the markets, Saut is not bearish, but he is quite cautious. Last week, he pointed out that there were so many negative indicators that he wouldn't be surprised to see a contrarian stock market bounce. And, that's exactly what happened. You have to hand it to the market strategist as he's correctly removed his market hedges into the turmoil and then correctly called the rally. So, where does he stand now? Since that transgression of events, he has reverted back to his cautious stance for the intermediate term. He thinks any pullback will be contained in the 1040-1050 zone on the S&P 500.

In order to find success in these cautionary times, Saut points to risk adjusted stock selection and risk management as the keys to portfolio success. This is interesting because Lee Ainslie of hedge fund Maverick Capital previously opined that 2010 would be a stockpicker's market. Yet, when you examine the performance of many long/short equity hedge funds, that doesn't seem to be the case at all. Maybe 2010 is truly setting apart the best stockpickers from the rest of the pack. While 2010 has been rough on many big name investors, Abnormal Returns has dubbed the next decade the forthcoming golden age of stockpicking. In the near-term, Saut agrees that stockpicking is key.

A few weeks ago, Saut advised investors to protect gains from the March 2009 rally and his stance remains unchanged there. To help investors with their stockpicking prowess, he has recommended a few names: Microsoft (MSFT), Intel (INTC), Enterprise Product Partners (EPD), Allstate (ALL) and Walmart (WMT).

Specifically on Microsoft, Saut highlights its $3.50 per share in cash, 2% dividend yield, and cheap valuation. Regarding Walmart, he thinks its valuation is low here and sees the company growing revenues in the high single digits and buying back a lot of shares. Lastly, Saut puts in a plug for Putnam's Diversified Income Fund (PDINX) as it has the possibility to generate equity-like returns without the same risk profile as equities. Embedded below is Jeff Saut's entire investment strategy piece for this week:



You can download a .pdf copy here.

Overall, Saut remains cautious longer term. He currently favors growth over value stocks and has highlighted numerous technology sector names in his missives. While he thinks the selling will be contained near-term in the market, he points out the S&P 500's 50 day moving average as a key level of resistance at around 1,100. For more on Saut's market rationale, head to his commentary where he outlined his decisively cautious stance.