Tuesday, February 10, 2009


Now that the outlines of the fiscal stimulus package and the so-called bank bailout plan are fully in the public domain, in other words now that the big news is out, experienced investors know it is time to see if the market action matches the real economy rhetoric. For these are such times when a mismatch between the news and the markets, between fundamental and technical analysis can yield positive returns in both absolute and certainly relative performance terms.

Under such circumstances, the investment trap less experienced investors can get into is to assume that after so much news has been disclosed all in one direction (bad, in this case) and the markets have moved in that direction (down, in this case) that new news, especially big new news (bad, again in this case) will be matched by a similar market action (down, as before). Au contraire, says the experienced investor.

Investment Strategy Implications

“What’s past is prologue”, advises the Bard. Investors would be wise to heed these words, particularly in times when big news does not produce the expected inexperienced investor results.

Key to watch for is the following:

• Price, Volume, and Volatility declines (all versus earlier in the cycle periods)
• Performance variance of sectors, styles, regions, and countries versus the broad market indices

For the more bullishly inclined longer-term investors, both sets of observed data will strongly imply a cyclical rally is in the offing. This does not mean a sustainable secular bull market is about to erupt. Rather, a cyclical bull rally WITHIN A SECULAR BEAR MARKET would be a distinct probability. Watch for the mismatch. And don’t miss the potential for a money making opportunity in stocks. Heaven knows we could all use some ways to make money.

Note: Since the fall of last year, key technicals analysis indicators of the equity markets have improved, most notably the near term Momentum and MACD.

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