Guest Author - Guido Deboeck
Last Friday about the time the market closed I tuned into CNBC. Just before the close on the floor of the NYSE exchange a trader was interviewed who made it clear that has a bear, he did not believe in the current rally. He said that weeks ago he became skeptical and still was skeptical, although he had to admit that for the last couple of weeks he had been wrong… Right after the close, Maria B. interviewed someone else who was in the same “camp”. He argued that interest rates had gone up, oil prices are over $60, the economy is not performing as well as it could.
Meanwhile the S&P 500 closed the week producing the best week since May. If you take a look at a chart of the S&P 500 you will notice that the market turned around on March 14 and got into a confirmed ralley on March 21. After reaching a high of 1437 (from 1363 on March 14), the market immediately dropped back to 1408 on March 30. It then started rising till 1540 on June 1, took a short break and dropped back to 1490 on June 7, to start rising again reaching 1533 last Friday.
The market climbs a wall of worries. Have you ever tried to write down all the things that should at present prevent the market from rising? There are the increasing interest rates, the oil price that is over $60, the potential inflation that is creeping in, the economy that is slowing, the stop-and-go action in the market…keep writing, the longer your list the better! All of these worries is what the bears live from.
None of these seem however to explain why the S&P500 is now up since Mach 21 by 6.8%. If you look at the Dow the rise is even higher, 8.8%. Then there are the overseas markets: year to date the global stock market index is up 10.5%. The (so called) emerging markets are up 15.7% year-to-date. And in case you wonder about which was the best performing region (among the emerging), there is Latin America, up 30%. Brazil reached an historical high last Friday!
How do you figure the “bears” feel when after splilling their worries on TV they go back to their desk and got to cope with reality? How do you feel? Are you like them in “THE NILE” or have you reached a level of sophistication in investing where you easy shrug this off? I hope so.
Many postings on this site have discussed what is of real importance: foremost, “give me the facts, and the facts only” about the market movements; not the opinions of any of the Wall Street gurus, TV talking heads, friends, hairdressers or cabdrivers. Get the facts from reading the charts and observing the price and volume movements.
Secondly, to not follow the herd: if everyone claims you should buy big cap blue chips in the US, look elsewhere, even down-under or south of the border.
Thirdly, do your homework, don’t hesitate to take action on the basis of solid analysis and watch your holdings closely. If necessary take losses but avoid pushing too quickly the panic bottom because the market will continue to "climb a wall of worry". Remember, the market does not react to yesterday's news, it anticipates market values six months down the road. In short, it will always outsmart just about everyone but leave plenty of opportunities for those that are willing to take a ride with it.
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