I may be going out on a limb, but here's what I see:After reaching the most oversold condition we have seen in our generation, stocks are in the midst...
I may be going out on a limb,
but here's what I see:
After reaching the most oversold condition we have seen in our generation, stocks are in the midst of a classical bear market rally. The S&P 500 was up 11% last week, its best weekly performance since November 2008. This rally serves two purposes.
For the non-astute investor: the rally will move stocks higher, possibly erasing all of 2009's losses and even giving stocks a gain for the year. The purpose here is for the bear to lure investors back into the stock market...give investors that sense of "everything is getting back to normal," so that they put their money back into the stock market. As investor pessimism subsides, and investors get back into the market, that's when the bear will return and take investors' money away again.
The stock market always gives us two chances. For the smart money: this rally in the confines of a bear market is an opportunity to sell those stocks you still have in your portfolio. Did you get caught and not unload those "quality" stocks like GE, Microsoft, Starbucks and others? Well, this rally is your second chance to do just that. Once stocks regain all their 2009 losses, investors should seriously consider selling out their blue-chip and large-cap stocks before the bear market takes over the helm again.
Most of the "young" people reporting the news today have never dealt with a real bear market. Few have bothered to study history to see what big bear markets are all about. Even fewer have taken the time to see the striking similarity between today's market and that of 1929-1932. Real estate topped out before the stock market crashed in 1929. Same thing this decade: real estate topped out in 2005 and the stock market started coming down in late 2007. Are we seeing the rally of 1930-1931 played out again today? Only time will tell.
All I can tell you is that, during the 1930s, we didn't have all the stimulus we have now from the government. That's the big difference. And time will tell if all that stimulus (reduced interest rates, bailout of financial institutions, big government spending and deficit programs) will indeed make a difference.
Michael's Personal Notes:
I'd like to welcome and thank the thousands of new PROFIT CONFIDENTIAL readers joining us. In January, we had 5,500 new PROFIT CONFIDENTIAL readers. In February, we picked up 7,000. This month, it looks like another 9,000. We've been writing PROFIT CONFIDENTIAL since 2002. Hopefully, what we've been saying, predicting, forecasting and rambling on about has been making a differenced in people's lives, especially in their pocketbooks. People are learning about us in the Internet...current readers are telling their friends about us...and we are all very flattered by the rapid rise in our circulation.
Where the Market Stands:
The stock market loss for the year is steadily declining, as the bear market rally continues. The Dow Jones Industrial Average is now down 17.7% for the year. At one point, the Dow Jones was down 25% for 2009. Will the current market rally bring us flat for the year? Yes, this could happen. And if it does, it will be time to sell those blue-chip and small-cap stocks you are still holding.
What He Said:
"When property prices start coming down in North America, it won't be a pretty sight because consumers are too leveraged. When consumers have over-borrowed so much that they have no more room in their credit lines to borrow more, when institutions start to get tight on lending, demand for housing will decline and so will prices. It's only a matter of logic, reality and time." Michael Lombardi, PROFIT CONFIDENTIAL, June 23, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.
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