Stock Market Whipsaw II

by | Aug 27, 2007 | Point and Figure, Stock Market Comments

OK, in just the last few days, the indicators I rely on to manage your money flipped from defense to offense.

This means we ought to be looking to put money to work. But before you jump in the pool, let’s examine some facts:

The bullish percent (the primary indicator of RISK in the market) is at the lowest levels in five years, and has just moved to offense. Very positive.

The short-term indicators have also flipped positive from extremely low, washed out levels. Another positive.

Just about everyone (including mainstream media) is talking about how terrible the market is currently. The front cover of Fortune magazine this week MARKET SHOCK 2007 (now what?). Another positive.

The Dow Jones dropped from 14028 to 12250 (about a ten percent drop), before recovering the last few days. Still hurts, but is actually normal and healty.

Ok, sounds good. What’s bad?

Markets rarely (if ever) drop 10% and then suddenly start going straight up. It’s not just mathematical, it’s psychological.

While the indicators have turned positive, not a single sector has yet to turn positive. That’s not a good sign. And there’s still talk of more fallout from this whole mortgage mess. Banks, brokers, lenders of any type are under the microscope. Bad.

What else? Well, market bottoms are a process, not an event. This dreary feeling could hang over the stock market for awhile — like the rain we had at the shore last week. You know — it’s only going to rain on Monday. For four straight days!

And, as someone reminded me the other day, you know autumn is usually not a good time for the stock market. Which is about the dumbest thing anyone could ever say. The stock market doesn’t even know what day of the week it is, let alone the seasons!

Here’s the deal: if you’re aggressive, it’s time to start dipping a toe back in the water. Often, what starts out as a short term thing turns into a long term event (kind of like moving from dating to marriage, right?).

But beware, we may have to un-do everything in short order if the indicators turn negative. The possibility of that happening is 50/50 today. That’s when people feel like they are getting whipsawed by the market. We want to avoid that. Looking for ideas? We’re just a phone call away, at 732-223-9000.

If you’re not aggressive, sit tight. I don’t have a single client who is 100% in cash. 100% cash is a very aggressive stance. You could miss a lot when the market starts to turn up if you’re sitting out the dance.


Thomas Mullooly
Mullooly Asset Management LLC
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