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Capital Protection Is Key in This Random Market

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The current stock-market correction is still very questionable, and there's a higher risk to being heavily invested in stocks right now. Trading remains more random than not, and driven essentially by the news headlines of the day. For now, protection of capital is key.

The current stock-market correction is still very questionable, and there's a higher risk to being heavily invested in stocks right now.

Thursday, we see another low-volume, big-swing attempt to "scorch the shorts." The Standard & Poor's 500-stock index is trading into the key resistance level of 1,085. With the exception of the Russell 2000 Index, the other major stock market indexes (The S&P 500, the Dow Jones Industrial Average, the Nasdaq Composite Index) continue to trade below the 200-day moving averages -- and that's bearish territory. Wednesday's decline was distribution with higher than-average-volume on the New York Stock Exchange, but lower-than-average volume on the Nasdaq Stock Market.

The stock market is still more random than not, and driven essentially by the headlines of the day. For now, protection of capital is the best decision. We are looking for a confluence of key technical factors -- breadth, higher/lower volume, etc. -- before we would consider putting more long-term risk exposure in our portfolios. It's a matter of treading lightly here and let letting some short-sellers get “battle hardened,” as the case might be before increasing our long-term or short-term exposure.

Current economic indicators haven't produced a clear sign that the U.S. economy is firmly on the rebound, so the market will use any better-than-expected news to pound short sellers. However, there are a few recent economic developments that bear watching:

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Economic conditions progressed, albeit at a “modest” pace, over the past eight weeks in all 12 Federal Reserve districts, according to the Fed’s latest "beige book" survey, released Wednesday. The labor market picked up slightly across the board, with permanent employment levels inching up in most regions, and inflation remains subdued. Consumer spending and tourism activity were strong points, as was net business spending. Non-financial services, manufacturing and transportation also gradually improved.

The Chicago Fed presented us with one of the shortest beige books in recent memory, but perhaps that’s simply because there is no substantial "new" news. Bottom line: The economy is growing, but at a snail's pace.

This material presented here has been obtained or derived from sources believed to be accurate, but we do not guarantee its accuracy and it may possibly be incomplete and condensed. The opinions expressed are based upon our study and interpretation of available data. This is not a prospectus; no effort on our part with respect to sale or purchase of any securities is intended or implied. Any stock noted herein is not, and should not be construed as a recommendation or rating to buy or sell any security. Such stocks are intended for illustrative purposes only. It is possible that at this date or some subsequent date the officers, directors and/or shareholders of Sierra Capital Investors, Inc and its affiliates may own securities or buy or sell securities mentioned herein or those not so mentioned.


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