Microgen catches the eye in a weaker market I'm reducing market exposure generally, but this small software company is an exception, says David Schwartz I continue to reduce my exposure to the stock market and increase my cash balance. Several trends caution me that UK shares remain vulnerable to a further correction after their strong multi-month rally. One concern is linked to the age of the current bull market, assuming that one is indeed still running. It began in March 2009 and is now in its fifth year. During the past 100 years, many UK bull markets ran for one to three years. A few ran longer. These long-runners occurred when economic conditions were favourable or there were good prospects on the horizon. But 2013 does not fit the bill. Current economic conditions are weak and prospects for the future are hardly inspiring. Viewed from this perspective, the stock market is ripe for a correction. Support from the Federal Reserve's quantitative easing (QE) programme has been a major contributor to the recent rally. But the Fed warns that QE will be reduced in scope. Friday's benign US job creation figure does not change the fact that QE's days are numbered because it is not boosting the underlying economy. It is also worth remembering that investors - and share prices - are forward-looking. They typically react well in advance to a major Fed policy change. There are no guarantees in the world of investing. A sudden news bombshell can quickly send the stock market off in an unexpected direction. A strong fresh rally can be a frustrating experience for someone like me with high cash balances. But a significant event recently occurred that gave me some confidence that the risks of being left behind are minimal. In May, the UK stock market rose for the 12th consecutive month. It was the first time in more than 100 years that shares rose so steadily over so many months. There was one other rally in the last 100 years that ran nonstop for 11 consecutive months and three more that ran for nine or 10 months. The aftermath of these steady rallies provides me with an interesting perspective. Two were followed by a flat price trend for the next four to six months. The other two were followed by double-digit declines. The most recent of these long-runners ended in July 1987 just before the big crash later that year. It is easy to dismiss trends like this one because of the small number of observations. But there is a consistency to these figures. It is a reminder that shares are not likely to rise by very much in the aftermath of a long-running rally. A period of digestion or a partial reversal is much more likely. The barrage of recent warnings from the Federal Reserve about prospects for QE gives me some added confidence to respect this long-running historical trend, despite the low sample size. Shares are not likely to rise by very much in the aftermath of a long-running rally. A period of digestion or a partial reversal is much more likely David Schwartz Because I'm battening down the hatches, I've been selling far more shares than I've been buying. But a notable exception was my recent purchase of shares in software supplier Microgen (MCG). The company had been on my watch list for some time. It is profitable, debt-free and pays dividends. But I held back from purchasing these shares because of the lack of profit growth. But an interesting development occurred about three weeks ago that prompted a change of heart. The company announced that its relatively small size was inhibiting growth. Many potential customers are large, risk-adverse companies who tend to favour Microgen's larger and more financially secure competitors. The company is considering several fresh strategic options. Its list includes the possibility of selling one or both of its two main divisions. My immediate reaction was that Microgen had put itself up for sale. Other investors apparently agreed with me because Microgen's shares bounced ahead by 9 per cent on the day. A second positive omen occurred two weeks later when heavy volume drove shares up by more than 7 per cent on a day when the FTSE 100 lost more than 100 points. Interest in this company is clearly growing. The graph provided another positive signal. Notice that the shares just burst through an area of resistance that had been in place for almost two years. I believe there is more upside to come despite underlying stock market conditions. Stock market historian David Schwartz is an active private investor writing about his own trades