Monday, 27 July 2009

Weekly Wrap: Your source for stock, stock market, and stocks info

Weekly Wrap: Last week was another amazing week as the S&P 500 marched up another 4.13%. The S&P 500 is comprised of 500 of the top American companies so it is a broader reflection of the overall markets rather than the Dow Jones Industrial Average (DJIA). A myriad of stocks broke to new 52-highs. We had a huge short covering day again on last Thursday. I would think after two strong weeks up that we would get a sideways to down move this week. I believe that you have to be a contrarian to successfully pull money from the markets, so always leaning against the crowd is what I opt for. I do think the market has a little more legs to it, although I think the rally of the past two weeks has been ridiculous. We are going to close out the month of July this week and head into August. I don't think August will really be all that exciting. I do think that this fall is going to see some volatility come back into the markets. If you take a look at the VIX (Volatility Index), it closed at 23.09. That is the lowest close since September of 2008. There is just too much complacency from investors and traders that the economy is now on the rebound. I expect volatility to explode this fall. I think maybe the rally could last until the beginning of 2010. A lot of people try to predict market and tell you when something is going to happen. It is extremely difficult to predict the time that something is going to happen, and that isn't just for the stock market. I think that applies to everything. I think formulating a scenario (or several scenarios) about what could happen in the future by taking current events and deducing what the future trends will be is more advantageous. I think having a view (whether bullish or bearish) and then waiting for the right opportunity to trade/invest on that view will make you more successful. For example, people who are jumping up and down about the stock market's rise from the March lows proclaiming that they see "green shoots", the economic recovery is right around the corner, and the "worst is over" should not just jump in and start buying stocks recklessly. Wait for a correction to accumulate positions rather than buying stocks that are moving up fast. And for people who are stubbornly bearish who have the idea that these green shoots are weeds, the economic recovery is not going to happen, and the worst is yet to come should not start shorting or selling stocks yet until there is further evidence that the bear market rally is coming to an end. I think having a view either bullish or bearish is paramount first, but then waiting patiently to trade/invest that view will actually make you money. Look at all the bears who starting shorting in April and May, they got beat up and slaughtered in June and July. The bears might be ultimately right in the end if the market breaks the March lows and heads even lower next year, but for now they are wrong. Being right at the wrong time is still being WRONG.

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