From the woes of Europe to the action in the Shanghai Composite, there are plenty of reasons to worry. So why is Raymond James chief investment strategist Jeff Saut so optimistic?
Probably because he thinks the rally has legs.
In a live interview on Fast Money Saut tells us he's convinced the market made its low for the year last week when the S&P bounced and then rallied sharply.
And, yes, he’s fully aware the the S&P broke below support – but he tells us that’s ok.
”It was an undercut low,” he says, “just like in 1978”.
What's that mean?
Essentially, Saut thinks patterns in the market now are similar to patterns made during the late 1970’s “when we came down hard and made selling climax lows."
He goes on to explain that the market went sideways for about 7 or 8 weeks as it bottomed. And during that time "we violated the selling climax lows with a slight undercut."
Saut thinks that’s what happened last Tuesday.”
In addition, Saut has done on the ground research and found money managers in both Europe and the US are very underweight American equities. “All we need to see is a slight rotation out of bonds and into stocks and the market could surprise a lot of people on the upside.”
If he’s right, then the path of least resistance should be higher.
As you might expect, Saut is looking for sharp gains into year's end. He thinks the S&P finally breaks out of its range and trades above 1230.
However, that doesn't mean the upside is limitless. Saut also thinks the market has a ceiling on it - in the form of the highs made back in May. Those, he says, will remain the highs for the year - mostly because of all the technical traders in the market.
”We're like a heart attack patient. We’ve done too much technical damage for us to get off the gurney and just run,” he says.
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Trader disclosure: On October 12, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour owns BAC; Seymour owns GLD; Seymour owns POT; Seymour owns AKS; Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Terranova is long VRTS; Terranova is long LQD; Terranova is long MUB; Terranova is long FCX; Terranova is long TBT; Terranova is long OXY; Terranova is long HOS; Terranova is long F; Terranova is long LULU; Terranova is long OIH; Terranova is long CAT; Terranova is long AXP; Terranova is long EMC; Terranova is long WFC; Terranova is long AAPL; Terranova is long IBM; Terranova is long Silver December $40 puts; Finerman owns AAPL; Finerman owns BAC; Finerman owns GOOG; Finerman owns JPM; Finerman owns ORCL; Finerman’s firm owns AAPL; Finerman’s firm owns JPM LEAPS & PUTS; Najarian has long call spreads APPL; Najarian has long call spreads MOS; Najarian is long CBOE; Najarian is long CME; Najarian is long SIGX
For Jeff Saut
Saut owns HCN
Saut owns LIN
Saut owns EVEP
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Evercore Partners seek investment banking business from Sprint (S) and expect to receive or intend to seek compensation for investment banking services from this subject company within the next three months.
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Ticonderoga Securities: The relevant research analyst(s), as named on the front cover of this report, certify that (a) the views expressed in this research report accurately reflect their personal views about the securities and companies mentioned in this report; and (b) no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation(s) [POT, CF, MOS, DE, DBA] or views expressed by them.
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