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At this point, we think you should be holding at least some cash on the sideline—maybe 20% to 25%, though it depends on how you run your ship.

The yellow flags of the past couple of weeks finally hit a breaking point starting late last week, with most indexes and leading stocks hitting a good-sized pothole. If the sharp dip is over, there should be plenty of stocks that are providing new and/or follow-on entry points (rebounds from their 50-day lines, for instance). But we’re still tightening stops, too, and could easily turn more cautious if the market/stocks crack further from here.

After a sharp selloff last week, the sellers really showed their muscle this week, driving the indexes sharply lower even after this morning’s solid bounce.

It’s been a bit of an unusual week, with the major indexes generally giving ground for most of the first four days, especially the Nasdaq, which had been drastically underperforming. Then came today, when a few bullish earnings reactions from giants like Intel and Amazon helped the Nasdaq rip higher, though so far, it’s mostly a mega-cap affair.

Despite this morning’s rally, it’s shaping up to be another rough week in the market, with most indexes currently down a bit more than 1.5% on the week, though obviously that could change by today’s close.

Here we are at the beginning of a new year and a new decade. A pivotal calendar turn like this is a great time to stop, get off the train, look around and see where we are, and where we might be going.

It is likely that a pullback in the market, as measured by the indexes, is increasingly likely in the near term. But that would be healthy and welcome. And it would set up things better for the rest of the year.

There is a lot of uncertainty out there, which isn’t an entirely new scenario. We’ll continue to try and play it a little safe right now by keeping all stocks previously rated hold at the same rating.

This market is having quite a rally. The S&P 500 just had one of the best months ever in July, up 9.1% for the month, and is currently up more than 12% from the June low. Will the good times last?

Investors are sniffing an end game to the misery of ever-rising inflation and an ultra-hawkish Fed that has been dogging the market all year. The market tends to anticipate six months or so into the future. By then, it sees inflation under control and a Fed that is done hiking rates and maybe even talking about easing again.

The torrid 17% rally from the June low is sputtering. That makes this market dangerous.
After bleeding all year because of persistent high inflation and a hawkish Fed, the market rallied on newfound optimism. The market anticipates six to nine months down the road and investors envisioned a Fed that is all done hiking rates by then amid falling inflation. But that’s optimistic. And the optimism has been waning.

Is this a bear market rally or a new bull market?

That’s the question investors are grappling with. Is this the end of the crummy market or is this 17% rally off the lows just a head fake? Let’s examine each possibility.

Now, this would be a natural place to write about a solar power stock, but I’ve done enough of that in recent issues. Instead, I want to write about a nifty little Brazilian company. And here’s why. In my mind, the world’s stock markets are linked by conduits that channel money this way and that, every minute of every day, always reacting to the latest news and the resulting changes in perception.

If there is one message I want you to take home from today’s issue, it’s that cannabis stocks are cheap. Really cheap. And they may never be this cheap again.

So if you’ve got some cash sitting around that you want to “risk” in a long-term investment, consider the stocks I’ve rated buy.



In the meantime, our portfolio, which has beaten the index in each of the past four years, is 58% in cash, waiting patiently for the turn.



Full details in the issue.



Yours for wealth and wisdom.

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