On the lookout for increased volatility and a slight pullback

Many of the stock market indicators are suggesting caution, but investors now have to consider the “new normal” before jumping in or retreating, according to Jeffrey Beamer, manager of the Lacerte Guardian Fund (LGFIX) for Lacerte Capital Advisers LLC. “While we're not in the business of picking highs and lows, we must remain respectful of significant technical areas,” he said. “The fact is, we are now entering into the heart of earnings season, and when combined with where we stand technically in the market, this could lead to some increased volatility and a reason to be prudent.” According to Mr. Beamer's analysis, at current levels, the stock market is slightly above a trend line leading from the market's peak in October 2007 to a lower peak in May 2008. “Technically speaking, we still remain 30% off the market's closing highs of October 2007, but the market has rallied up into some significant technical resistance,” he said. The trend line analysis has combined with other technical factors, including low market volatility and low trading volume, to give Mr. Beamer his case for caution. “If you missed this rally, I'd be concerned about jumping in with both feet right now,” he added. “I'm not looking for another 2008-style crash to occur, but I am looking for a pullback of about 5%.” Mr. Beamer's strategy of using put and call options to hedge a large-cap-blend portfolio was managed as a hedge fund until Oct. 1 when it was converted into a mutual fund. As the stock market rally has continued, he said, the list of sectors and industries that are participating has narrowed. “In November 2008, we went from being concentrated in our portfolio to being broad-based and diversified, because I thought if we were going to rally, everything would rally,” he said. “Now we're getting more specific in areas like energy, agriculture and commodities.” Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.