First correction post August | stockbee


First correction post August

After the August bottom post July dip in the indexes, the market rallied powerfully. The rally was straight up rally with no pause and no major correction. At the start of the rally there was major skepticism. Same set of arguments which are currently being blamed for Friday's action were being blamed for that correction.

The mass media and the favorite pundits of mass media tend to exaggerate problem. Prime example of that is Stephen Roach of Morgan Stanley, who was extensively quoted by Barron's in this week issue. Now this particular gentleman has called for a recession in 2002, 2003 he predicted world economy is headed for correction due to SARS (Severe Acute Respiratory Syndrome or bird flue), in 2004 he predicted economic 'Armageddon' , in 2005 he predicted China would slowdown, in 2006 he predicted markets could reverse course in a flash, and in 2007 he is still at it predicting doom and gloom. Should investors pay attention to such hard boiled bears who have been at it for years.

Mass Media has a well documented bearish bias. In newspaper and TV business, and trading blogs pessimism sells more than optimism. So while there are imbalances in the economy, the actual truth might be just 20% of the exaggerated stuff dished out by bears.

After over 5 years of bull market, even if there is a small bearish phases, that will not be the end of the world. One has to be ready for the next upturn, instead of casting your lot with market is going to go down 50% crowd. As last rally demonstrated, the corrections can lead to powerful rallies.


F-Trader said...

I agree and continue in the bull camp in the intermediate term but you have to begin to wonder how long the markets can continue to rally before becoming more of a range bound market with BKX showing one of the ugliest, most bearish charts I've seen in a good while. The money flows we see this January will likely be a good tell.

Of course, none of this matters to traders, maybe just long-term macro investors.

Prashant said...

Well said Pradeep! I have noticed you say this may times and with good reason - it takes time for a new investor to understand the market cycles. It took me some time to really understand how the market corrects are then rallies. The clue is to follow the market everyday and be ready when the market behaves well (and of course, stay in cash when it behaves bad).

Pradeep Bonde said...

Go where the money is tech is where the action is. Growth stocks is where action is.
It pays to be bullish till you see a proof that it does not work. In last 5 years there have been several tops and corrections. Every time the bears had same arguments.