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Over six weeks have
passed since May 6th, the day of the "flash crash"
that gave investors one more reason not to own
stocks. During this time period, the stock market,
in terms of the Dow Jones Industrial Average (DJIA),
has traded as high as 10,920 (5/13/10) and as
low as 9,757 (6/8/10) on an intra-day basis. At
the low point, the DJIA had traced a correction
of 13.3 percent from its April 26th recovery high
of 11,258.
Aside from the bizarre
trading activity on May 6th, the performance of
the stock market since April 26th has been characteristic
of one that had become "overbought" after a dynamic
rally that persisted for more than thirteen months.
As stated in our previous posting, we continue
to believe that we are in a period of consolidation,
during which stock prices should trade in a relatively
narrow range. Low expectations, shared by most
investors, should serve to mitigate most adverse
news that is delivered to the marketplace in the
near-term. Although we cannot determine the duration
of this consolidation, we believe that the cyclical
bull market that began in March, 2009, will resume
in the months to follow.
Summertime is often
a period where investor interest wanes, trading
volume contracts and price movements are sideways
to down. In the weeks that follow we plan to be
opportunistic should the ongoing stock market
consolidation produce any long-term bargains.
Although our economy faces multiple headwinds,
interest rates are low, corporate balance sheets
are flush with cash, earnings have been surprisingly
good and the recovery appears to be proceeding
at a moderate, but sustainable, pace. History
has repeatedly demonstrated that patient, diversified
value investors succeed over the long-term. In
our opinion, there is no better time than now
to adopt this mantra.
This commentary is intended for informational
purposes only. It is not an offer to buy or sell
any security and should not be considered investment
advice.
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