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The Game

July 23, 2012 – 5:06 pm

We may have hit the wall for large cap stocks. This sector has outperformed other sectors this year as investors and traders became defensive, enjoying the high dividends and relative safety of the big companies a lot more than the dismal 1.5% yield the 10 year treasury provides and the scary volatility of the smaller stocks. The valuations and the dividends on the large stocks no longer look so compelling in the face of a softening and as yet undetermined eventual economic outlook.

We may be approaching an inflection point or two. First, if the economy stabilizes and then starts to improve, then the stock market will rally. Secondly, that rally is likely to be in growth stocks not the big behemoths that have bullied their way higher in recent weeks and months. The big boys look to be getting tired and it is time to for the well-rested growth stocks to shine.

Of course neither the big boys nor the young growing companies will do well if the game changes from a slowing economy to recession. However, that outcome is unlikely as the coach (in the form of Bernanke) gets ready with his QE3 relief, and the owners of the team (our President and Congress) decide not to throw the game over the fiscal cliff.

There are a lot of players in a complex game, the outcome is not assured. Then again is it ever?

Good Trading
Steve Peasley

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