“Uncertainty is the only certainty, and Learning to live with insecurity is the only security.”
–John Allen Paulos
Date: 10/26/2009
Dow: 9,867
This current market situation as I see it:
It may be hard to believe, but the stock market has climbed 50% from it’s lows in March and is up 17% from January through September 30th. The question we are led to ask is whether this rally will continue or whether it will end. I think we can make the case that this spectacular rebound is similar to a tightly coiled spring being released after a full year of being pressed tighter and tighter. As soon as the economic stress started to normalize, the market sprung back sharply to a state of equilibrium. If this is the case, then we should expect a correction as the spring bounces back and forth finding a stabilized level. The reason is logical. Since when, does a market rise of such magnitude continue to climb without taking a without taking a breather? The answer….Never.
The real question today is whether the current decline signals a new downward path for the stock market or a simple and much needed correction. Only time will tell, but we do have a few clues we can use.
The Technical Point of View
I have been saying, based on technical research, that while we are now due for a correction, yet the intermediate term picture (3-9 months) continues to look good. Yes, we are seeing a few signs of weakening, but buying on dips is still a good idea.
For my day to day commentary on this, click the following link to join my Twitter Page.
The Fundamental Point of View
Looking at the economy and the world political situation, things seem pretty negative. Tensions heating up over Iran and Afghanistan, the health bill in disarray and a surprisingly downbeat unemployment report have added to the worry among many things. Not all is bad, however. With low inflation and low interest rates, most economists are saying the GDP should grow 3-5% this quarter and 1-3% going forward. We also may be at the high point of unemployment which currently stands at 9.8%. Perhaps things will get better from here, not worse.
The Age-Old Dilemma
Investors are always faced with a quandary when forecasting the moves of the market in the short-term. You never know what will happen next so there is a bit of psychodrama that takes place with every market move. Since we are expecting a correction, allow me to illuminate the current dilemma
Situation:—Market moves down 5-10%:
The dilemmas:
1. You are afraid stocks will continue lower so you sell now only to find this was a temporary correction and you should have added to your investments.
OR
2. You have been waiting to buy-in because buying the dips has worked for the last 6 months, so you hold your nose and take the plunge and buy more, only to find this was the beginning of a next downward leg of the stock market.
There is no “best” answer to this problem. My strategy is to take an incremental approach to investing taking the emotion out of it as best you can. Thinking long- term, stocks are more likely to have a higher percentage return from these levels than they did at when the Dow was at 14,000.
But time is the key. The stock market is still the best mechanism for investing in the growing dynamism of capitalism worldwide. It is a MUST HAVE investment for your portfolio but like the mighty oak, it needs time to mature to its full potential.
“Uncertainty is the only certainty, and Learning to live with insecurity is the only security.”
–John Allen Paulos
Date: 10/26/2009
Dow: 9,867
This current market situation as I see it:
It may be hard to believe, but the stock market has climbed 50% from it’s lows in March and is up 17% from January through September 30th. The question we are led to ask is whether this rally will continue or whether it will end. I think we can make the case that this spectacular rebound is similar to a tightly coiled spring being released after a full year of being pressed tighter and tighter. As soon as the economic stress started to normalize, the market sprung back sharply to a state of equilibrium. If this is the case, then we should expect a correction as the spring bounces back and forth finding a stabilized level. The reason is logical. Since when, does a market rise of such magnitude continue to climb without taking a without taking a breather? The answer….Never.
The real question today is whether the current decline signals a new downward path for the stock market or a simple and much needed correction. Only time will tell, but we do have a few clues we can use.
The Technical Point of View
I have been saying, based on technical research, that while we are now due for a correction, yet the intermediate term picture (3-9 months) continues to look good. Yes, we are seeing a few signs of weakening, but buying on dips is still a good idea.
For my day to day commentary on this, click the following link to join my Twitter Page.
The Fundamental Point of View
Looking at the economy and the world political situation, things seem pretty negative. Tensions heating up over Iran and Afghanistan, the health bill in disarray and a surprisingly downbeat unemployment report have added to the worry among many things. Not all is bad, however. With low inflation and low interest rates, most economists are saying the GDP should grow 3-5% this quarter and 1-3% going forward. We also may be at the high point of unemployment which currently stands at 9.8%. Perhaps things will get better from here, not worse.
The Age-Old Dilemma
Investors are always faced with a quandary when forecasting the moves of the market in the short-term. You never know what will happen next so there is a bit of psychodrama that takes place with every market move. Since we are expecting a correction, allow me to illuminate the current dilemma
Situation:—Market moves down 5-10%:
The dilemmas:
1. You are afraid stocks will continue lower so you sell now only to find this was a temporary correction and you should have added to your investments.
OR
2. You have been waiting to buy-in because buying the dips has worked for the last 6 months, so you hold your nose and take the plunge and buy more, only to find this was the beginning of a next downward leg of the stock market.
There is no “best” answer to this problem. My strategy is to take an incremental approach to investing taking the emotion out of it as best you can. Thinking long- term, stocks are more likely to have a higher percentage return from these levels than they did at when the Dow was at 14,000.
But time is the key. The stock market is still the best mechanism for investing in the growing dynamism of capitalism worldwide. It is a MUST HAVE investment for your portfolio but like the mighty oak, it needs time to mature to its full potential.
Posted in On The Money! Commentary | Tags: stocks and bonds, finance, market, financial, current market situation, insecurity, security, certainty, uncertainty, technical, fundamental, dilemma