For over a quarter century, NorthCoast has been mindful of one key principle, creating a good long-term track record is more often built by avoiding losses as opposed to booking big gains. Every year since our founding in 1988, we have offered tactical investment portfolios that move to cash in an effort to avoid steep losses. It was this belief, coupled with our long-term performance that attracted Investor’s Business Daily (IBD) to partner with us in January 2006. We proved our mettle during the bear markets of 2000-2002 and 2008-2009 by preserving capital in client accounts. Managing market exposure is hard. It requires rigid discipline, vast research, and wise practitioners. Over the years, we have heard from many investors who took a short term success and extrapolated it into the future. It typically went like this, “I’ve been selling when the market is -5% off a high and then buying once it clears new ground. Look how that has worked from January thru October this year.”

In our experience, believing short-term patterns have long-term efficacy is a quick way to lose money. It’s just not that easy (For examples, click here and here). Intuition alone (and now fear…) can be a harmful guide to navigating tumultuous markets. The hard-wired self-preservation mechanisms which urge us to act and stop the pain by going to cash when our portfolios suffer are not always the best to follow. Jumping back in when the markets have already appreciated leaves a substantial amount of value behind. Outperforming the market requires a well thought out approach. Our approach is well founded and disciplined. It takes into consideration price movement but also many other complementary indicators which have served us well, even just recently in October 2014. Learn more about the NorthCoast approach.

Our current outlook: Bullish.

Many of our tactical stock strategies (including CAN SLIM®) entered this pullback with 15%-18% cash while our Tactical Growth ETF program was holding 7% in fixed income positions. Given the recent market action and new data, our plan is to hold through in this period and possibly add exposure with new positions at attractive entry points. This volatile market and investor uncertainty may take 2-3 months to play out, but the metrics we monitor continue to paint a bullish picture. Here are just a few below:

Valuation: A slightly negative signal for many months has now turned positive. Our valuation reading is at its highest level since May 2013 with P/E multiples significantly decreased.

Sentiment: Volatility (VIX), which is measured as a contrarian indicator, is at its highest level since late September 2011. The University of Michigan Consumer Sentiment and short interest indicators remain at bullish levels.

Technical: A declining 200-day moving average signals caution but other technical indicators remain in place, such as over-sold metrics.

Macroeconomic: GDP remains intact, jobs solid, and housing starts continue to increase.

The plan moving forward?

     As always, allow data & discipline to drive our decision forward

     Execute stop losses when the risk outweighs the future return potential

     Strategically increase market exposure with stocks displaying the most attractive return/risk ratio

     Continue to monitor the market and adjust accordingly