Date: October 20, 2021

Bulls Charging, BUT…

It has been a nice and fun run for the bulls since the middle of last week. The major stock market indices have all rallied 3-4%. It’s good that they are in sync. However, (Geez Paul, can’t you just leave it at that?) the daily number of stocks going up versus going down has been a bit of a stinker for the past four days. I would have liked to see very broad participation, especially in a rally so young. To add on that, options traders have priced volatility in the here and now much less than the 30-day average. That means people are a bit giddy.

Neither of these are major concerns nor bull market killers. It’s more of a short-term issue. I have used the rally to feed the ducks at the margin and incrementally reduce overall exposure. The biggest example has been on the sector front where our exposure went from roughly 125% to 85%. While there’s still plenty of risk on the table, it’s significantly less than it was a week ago when I bought so much. I sold some technology, materials and energy and bought healthcare. In other words I sold overall, but bought a lower volatility sector. On the index side I sold all of our mid cap growth and added to large cap growth.

Perhaps, we get a mild pullback or sideways consolidation. I could be totally wrong and stocks blast higher. I don’t think, but the market knows best. It’s good that semis are at new highs and banks are poised to follow financials into new high territory this month. The markets are also entering the strongest seasonal time of the year.


Paul Schatz, President, Heritage Capital