Is it Time to Invest in Stocks?

First of all what are some of the market gurus saying about the current rally? Is it a bear market rally or is it now a bull market rally given it has risen more than 20% from its lows?

What are the Gurus saying?

Many Gurus think the bottom is in according to this article< “Stock Market Gurus Think A Bottom Is In!”

“Dennis Gartman from the Gartman letter states he would err to the side of a being bullish due to the fact in rise of some of the metals, shipping and grain producers.”

Even Doom and Gloom Gurus believe the market can go higher but for different reasons.

“Mark Faber from Mark Faber LTD as well as Doom & Gloom report believes the current rally might have more legs. His point is that all of the worlds central banks printing money reinflates the financial markets.”

Don’t forget though …. “You are a guru until your prediction is wrong.”

So Who’s Buying Stocks?

According to an article on emii.com, “Hedge Funds Buy Stocks Again” on 20th March 2009, hedge funds purchased more stocks than they sold for the first time since October 2008. But…

“Mutual funds and other long-only investors, such as pension funds and insurance companies, were net sellers of an average $144.8 million of U.S. shares over the same period. Hedge funds bought mainly into health-care, consumer and industrial companies. Long-only funds were also net buyers of consumer shares and net sellers of financial’s.”

What is going on with the Short Selling?

According to the Financial Times a “Surge in short selling clouds rally prospects“. The opening paragraph states,

“Short interest on the New York Stock Exchange rose to its highest level since the collapse of Lehman during the month to mid-March and at its highest rate in more than a year as hedge funds increased their bets against the rally in US equities during that period.”

But it seems short sellers were not convinced this rally would last,

“The broader stock market rally was eclipsed by several prominent stocks, but short sellers took the view that the gains by these stocks, particularly those most affected by the crisis so far, were unsustainable.”

These statements refer to the period from February 27th to March 13th. So

It may be that the subsequent stock market rise is short sellers closing out their positions.

One thing to note is what happened in the 1930’s. According to the Los Angeles Times post, “Just another bear-market rally? Some signs hint otherwise

“If we are repeating the 1930s experience, short-term rallies far bigger than the current one could ensue, only to give it all back. Within the 1929-1932 market plunge the Dow index rallied 29% or more on three separate occasions.”

What should a Baby Boomer do?  Right now it is confusing and dangerous.

  • The Market is well below the 200 Day Moving Average.5 Year Dow Daily Stock Prices with 200 Day MA
  • It needs to make a higher low and then a higher high again before we can consider a change of trend.
  • It should close above the 200 day Moving Average too.
  • Fintrend.com’s NYSE Rate of Change Chart should be consulted too. The NYSE should cross above the 12 Month Moving Average in chart below.
  • Consider the weight of evidence and whether you are a short term trader or a long term investor.
  • Baby Boomers should only use money they are prepared to lose in this market. The volatility could send you broke.image
  • If you want the trade stocks use stop losses based on your risk level. If you are happy to risk 10% then use a 10% stop. Use proper money management rules for position size and risk control. Understand prices can gap down below your stop and you can lose more than 10%.
  • Alternatively if you have a long term investor approach and are prepared to wear the pain of retesting the lows and possibly going lower (if it happens) then consider a buy and hold strategy using dollar cost averaging into the market. With a market 50% down this may work in the long term …..

What are the Fund Managers doing with Your Money?

I have tried to find out but I do expect them to be buying and selling like crazy. The rationale is the massive stimulus packages, the Geithner toxic assets purchase plan, the unwritten law of “buy the rumour, sell the fact” and the March quarterly bonuses.

Even now the short term bonuses have not been stopped, so this is a chance for fund managers to make a real killing based on a 20% or more rise in the stock market this month.

I wonder if someone should tell them they should not be entitled to any bonuses until they get all your money back.

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