Why You Shouldn’t Buy Into This Plunge
[To say that the market has capitulated] implies that the market has bottomed and that now is a good time to buy stocks. In my opinion, that is completely wrong. The market is building momentum to the downside…[and] the odds are that the inevitable reactionary bounce is a short reprieve on the way further down. If the capitulation results in a new and meaningful uptrend (and that is a big “if”), we will see that in the charts. Words: 552
So says William Scott O’Neil (www.blogs.forbes.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. O’Niel goes on to say:
The market may have a reactionary bounce from here – after all, look at all those “great values” – but will it be meaningful and lasting? How often have investors started initiating positions and been burned just a few days later?
A number of factors still have me doubtful that we will get a significant uptrend soon:
- This cycle started back in March of 2009, so we are late in the cycle. About 60 percent of the leaders since the beginning of the cycle are broken. The last dozen of the very best are pulling back into their 50 day moving averages…again…
- You usually don’t begin a real rally without at least decent looking patterns from numerous market leaders, not defensive stocks.
- Earnings and sponsorship look good, but those are lagging indicators that tend to look best at the top…
- It will be tough to gain traction without resolving the numerous domestic and international issues lingering over the market..
Sitting on the sidelines does not mean we will tune out and miss the next rally. That’s why we are always on the lookout for new rallies to begin, and we wait for confirmation on, or after, the fourth day of the start of a new rally. We are looking for the rally to prove itself. The idea is to give up the first few points as a confirmation of strength that the rally is real.
If you are trying to pick a bottom here, take a look at past cycles and see how successful you’ve been at that game. A few may make it work but ask yourself if you are trying to gain a few points here and there or… to build a portfolio of the best stocks that will result in a substantial year?
[So don’t act just yet – wait until the 4th day after the start of a new rally to make sure it is safe to go back in.]
- Reduce Your Exposure Next Time the Market Bounces – Here’s Why https://www.munknee.com/2011/08/reduce-your-exposure-next-time-the-market-bounces-heres-why/
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.