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October Update

20 October 2014
Turning the calendar over to the month of October in the market means 75 percent of the trading days for the year are now in the rear view mirror and there are just a few months left to close out the year. This year has been an interesting one that can be summed in a couple words: US Dominance. Despite this past month’s volatility (more on that below), the US Equity market remains the top ranked asset class we follow in terms of relative strength, which has been the case for three years now. The S&P 500 Index is what most people equate to the US market, and for the past 15 months (through September) this Index hit a new high in each of those months. This is the longest such stretch we have ever seen in the history of the market. The second longest stretch (13 months) came in the early ‘90’s. Perhaps the untold story in the US, though, is that of the US Dollar. The US Dollar has gained more than 7 percent through the first nine months of the year bringing the value of our currency to its highest level in more than four years. A strong US Dollar can explain a lot of the themes within the financial markets this year. For example, during strong US Dollar environments tend to favor US Equities, and strong US Dollar environments are also generally bad for commodity markets. As discussed above, US Equity remains the number one ranked asset class out of the six that we evaluate while Commodity is the weakest of the six. As we move through the month of the October we are reminded that this month, historically speaking, is associated with an elevated level of volatility, but it is also the last month in the “seasonally weak” six month period in the market as it marks the end of the “sell in May and go away” market adage. Our short term market indicators have moved into oversold territory, and in some cases are as low as they have been in three years. We will watch for reversals up from these levels, and use that as an opportunity to put more money to work within the Equity market. Remember that November 1st is the beginning of a period in the market that is known as the “seasonally strong six month” period, and rest assured that we are paying attention to the market and how your portfolios are positioned. Thank you for your business and support, Woody Rash