The summertime sandcastle built at the new all-time highs last month appears to be eroding, as there are fresh signs of institutional selling paired with individual investors’ apathy.
Has the top for this cycle occurred yet? History would say “no” — if history had a voice — because major monetary infusions like the one created and disseminated by the Federal Reserve and its fellow central banks in the eurozone and Asia have tended to build to highs that are five times the lows. Since the last bear market low for the S&P 500 was 666, the final top for this cycle theoretically would be 3,300.
That sounds high, but it’s only a double from here as most of the hard work has already been done. And it doesn’t have to be reached soon. The last 5x cycle took nine years, from 1991 to 2000, a stretch that included a recession and down year (1994) and some hellacious volatility (1998 and 1999).
My work is suggesting that there could be an “interregnum,” if you will, or a year or two that is flat to down from the hyperextended levels reached this summer. If that is true, then it will be more important than ever to focus on high-growth, successful names and ignore value traps such as old techs Intel (INTC) and Oracle (ORCL).
One of these successful names I’ve been scouting out is Alliant Techsystems (ATK).
This is a Pentagon contractor focused on ammunition. Shares have done great all year, but are still cheap. Rumors of a U.S. attack on Syria will help to boost most of the defense contractors, which sell war consumables. Shares bounced more than the market Thursday, then pulled back Friday, making for a good entry point as we come back from the holiday weekend.
Buy ATK for a $101.50 target.
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