Your Money: Using historical model, fund manager sees stocks going higher

Conshohocken-based portfolio manager Eugene Peroni Jr. believes the stock market is headed even higher - perhaps after a breather or short-term correction related to uncertainty in the Middle East.

Peroni uses a method of technical analysis, developed by his father more than 50 years ago. Peroni contends his indicators show the market could actually make another move higher.

Technical analysis differs from fundamental analysis, researching each company's earnings, cash flows, debt, and other balance-sheet data. Technical work instead looks at the history of a stock or commodity's moves up and down to determine what happens next. If the prices reach certain historical highs or lows within past ranges, sometimes that's a sign of what's to come.

Peroni says the 1,000 or so stocks he follows show few signs of taking a breather, other than a short-term correction. "It's a broad-based advance, including chemicals, cyclicals, manufacturers," he said in an interview. "We see a very balanced leadership in this rally. We haven't hit our cycle peaks yet."

So far this year, the Dow has gained roughly 16 percent, the S&P 500 index roughly 18 percent. "There's some room for a pullback," he conceded. "But in my opinion, that's certainly acceptable."

On the other hand, agriculture, metals, and coal stocks are starting to bottom, he said, signaling they may rebound soon. He's also bullish on consumer staples companies, energy, and health care.

"Copper, steel, and coal-related stocks have begun to establish base formations that could be signaling an important bottom for commodities. I am not expecting dramatic short-term reversals for commodities," he said, but relative strength trends in the commodity-related stocks could be constructive for the general market as the potential for increased demand bodes well for the economic outlook.

Peroni wrote in a recent letter to investors that he sees a path for the Dow Jones industrial average to reach 16,000 points: "A gradual recovery among depressed commodities could pave the way for higher stock market levels with corrections held to relatively modest 3 percent to 5 percent retreats before reaching DJIA 16,000, or higher."

Naturally, investors are following oil prices closely amid the turmoil in Syria and President Obama's arguments for military intervention. Peroni generally holds about 25 stocks at any one time, but through Advisors Asset Management, where he is a portfolio manager, some of the funds have a hefty up-front sales fee - up to 2.95 percent. Make sure to check with your broker before purchase about what the returns would be after fees. Peroni also runs separate accounts with a minimum $100,000 investment.

Peroni has other local ties. Prior to AAM he was managing director, equity research, for Nuveen Investments in Radnor, and director of technical research for the Philadelphia-based brokerage firm Janney Montgomery Scott. As of June 30, the brokerage and advised business at AAM represents approximately $12.2 billion in assets. Peroni Jr. currently oversees $25 million.

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