Holding Your Breath for September

Friday’s sharp skid in the markets closed another rough week. The Dow Jones dropped 3.25%, the S&P 500 tumbled 3.40% and the NASDAQ fell 2.99%. The MCSI Emerging Markets Index resumed its fall, collapsing 4.85%.

Market sentiment across the globe continues to be lousy, even as September is traditionally one of the worst months of the year.

To give you an idea how broad-based the sell-off has been, only a single market among the 47 global markets I track on a daily basis is in positive territory during the past three months. And that is Ireland, up by a tiny 0.48%.

And it gets worse.

Not a single market among the 47 markets is up over the past the month.

It is no wonder that many small speculators are throwing in the towel and betting on further drops in the markets.

In fact, based on futures tied to the S&P 500, Nasdaq 100 and Dow Jones, small speculators are now net short $2 billion worth of contracts. That’s the second-largest short position in 20 years, second only to September 2011. Recall that was also a period when stocks were testing what had been a panic low in August.

So why don’t I recommend that you short the market as well?

When we’ve seen this kind of pessimism in the past, stocks have a consistent tendency to bounce.

Of course, we’re in a more volatile period than we’ve seen in four years, so that makes it harder to have confidence in short-term judgments.

But this, combined with other statistics I’ve cited in previous Bull Market Alert issues and The Global Guru, makes me optimistic about the prospects for a rally at the end of the year once we are through this very rough patch in the markets.

Still, I see little reason to risk any more of your capital this week, even as you have a single holding on the Bull Market Alert portfolio.

Portfolio Update

ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA) dipped 0.82%. The Buckingham Research Group believes ULTA will rise in the future based upon recent excellent earnings and an increase in guidance. Buckingham reiterated its “Buy” rating and raised its price target on the stock to $187. This represents a potential 18.5% gain from Friday’s close. And, if ULTA’s current five-year average multiple holds, Buckingham sees the share price hitting $240 before 2018. ULTA is a BUY.

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