No doubt, yesterday’s rally was the result of an extremely OVERSOLD condition in the stock market. At one point, you could have taken your $3.99 Wal-Mart calculator and figured out that we were four standard deviations away from a median short-term price volatility. I had the luxury of having a research nerd do it for me, so don’t ask me about the calculation.
The market is damaged. I thought we would see a crash. Maybe we still may. Who knows.
However, if you were liquid on Friday or yesterday, you had to buy stocks at these levels, keeping in mind that buying stocks at these levels is a process, and not an event. Stocks are relatively attractive, and will be even more attractive if we dip down to 7300 Dow. Bear this in mind and don’t use up all your ammo here.
Currently, the NYSE Bullish Percent has now moved back up to over 12% from a low of 6% last week. In that respect, it appears that the sell-off has reversed for the moment.
If, you’re scared and thinking about getting out here because you already have taken 30% – 40% hits to your nether regions, it may be worth your time and money to stay with things over the near term, and ride this minor shift in sentiment, then get out once this faux rally fizzles out.
I’d view the current rally as a trader’s rally. I don’ see investors coming back in yet. They’re too scared, cowering in their corners, licking their wounds right now. Sitting in cash with 30% losses in one year makes them feel better, I guess.
The underlying fundamentals of the economy will continue to worsen. When the employment numbers and the ISM numbers stop going down, then the stage can be set for a sustained recovery in the market. (Remember, the consumer and his/her consumptive buying habits are over 70% of U.S. GDP). Until then, stay cautious and defensive.
Finally, the bullish analysts are still out there. Earnings growth expectations for 2009 are still in the double-digit range globally, except for the UK and Japan. Way too high still, imo. These eternal optimists need to be waylaid and put in the hospital to shut them up. They are not living in the real world.
Use this rally to do some trading / portfolio repair, but understand that the market is still in net redemption mode until expectations get lowered and the fundamentals of the global economy improve.
Let’s keep it real, people.