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January 27, 2012 

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Our insider-assisted top-down view hasn’t changed from last week. We continue to be fully invested based on our conclusion that the opportunity cost of being too bearish right now due to the obvious macro threats to markets is at least as great as the downside risk of continuing to ease into the many decent investment opportunities insiders are directing us to.

That has certainly been a profitable market stance so far this year. Looking at our Insider-Based Market Indicator (See Charts), the similarity of its movements with those of fall 2008/ spring 2009 are arguably in tact. As of now, we think it more likely than not that the similarities (read near-term market strength) will continue—and for such strength to be accompanied by our Indicator inflecting downwards again.

At some point we expect our Indicator to stay in what we have come to label “Healthy Normal” territory for longer periods of time, and behave more like it did before 2003 (see bottom Chart). But the economies of the U.S. and Europe are hardly ready for “normal” fiscal and monetary policies now, so a return of our Indicator back down into what we have come to label “Bubble Normal” territory seems logical as politicians continue their attempts to salvage the systems that keep them employed and in power.

We remain wary that U.S. equities will be penalized (again) at some point by the lower economic growth we have expected eventual austerity and fiscal discipline to cause. But, interestingly, even as our lower growth fears we confirmed by both the IMF and the U.S. Federal Reserve last week, stocks still held up. That lack of reaction seems to back our grudging bullishness. But better nimble than dogmatic. We have no problems becoming more defensive if and when it becomes necessary.

View The Insider Insights Buy/Sell Ratio