Saturday, April 11, 2009

Are we there yet?

"No one rings a bell at the bottom of the market." ~ stock market adage

The distribution of market sentiment is shifting and becoming more evenly spread among the three perspectives shown below:
  • After five weeks of an advancing market, some people are becoming optimistic that the economy is improving and the bear market is over. After several months of doom and gloom,the Obama administration now says the economy is showing "glimmers of hope." Bank announcements of a profitable first quarter are causing investors to be more positive about financial stocks and the market. Also, a number of analysts are becoming more positive.

  • Ben Stein offers a more middle of the road view in Stocks and Housing: Are They Putting in a Bottom? The article offers two opposing views, i.e. the economy and stock market has rebounded and is recovering or both are still due to fall further after the rally. Mr. Stein's solution is to play both sides by investing 50% in equities and 50% in U.S. Treasury bonds. This allocation would have good upside potential in bull market while reducing the downside risk if the bear market resumes.

  • Jim Jubak offers the pessimistic view in Is market turning? Stay skeptical. The bottom line is that Mr. Jubak believes the current rally is of the bear market kind, and that there will be opportunities to purchase equities at lower prices in the future. For reference, his portfolio is 49% in cash.
  • While I am more optimistic psychologically, my analytical (skeptical) side agrees with Mr. Jubak. The stock market has advanced too high, too fast and looks more like a bear market rally than a bear market bottom to me. In the past two weeks, I've taken the opportunity to sell some purchases from February and March, 2009 for gains, and unload the financial stocks purchased in October, 2008 for losses. In addition, I've sold some of the gains in our managed accounts, while maintaining our core minimum investment amounts.

    If I'm wrong, and the market continues to advance, we will still have enough invested to participate in the rebound. However, if I'm right and the market declines again in the near future, we will have cash reserves to reinvest in the market for the next rally.

    For more on Reflections and Musings, check back every Saturday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2009 Achievement Catalyst, LLC

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