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Thursday, December 3, 2009

New Market Highs

The S&P 500 hit a new high today. Everyone but everyone believes the market is now entered into a new era. The sky is the limit.

And they are right, if you believe an infinite debt machine (US government), infinite US dollar devaluation, and increasing number of people unemployed are all fine without repercussions in asset valuation.

By reading this blog, it is quite obvious trying to pick the top of an irrational stock market is just plain idiotic. But it is equally idiotic to buy into a stock market based upon perception and not reality.

Gary of the Smart Money tracker, one of my favorite pay bloggers, sent the following in his daily update. (snippet of a much larger email)

I don’t know about you but when the average retail trader is sure the market can’t go down I start to get nervous. Even more interesting is the fact that large traders also don’t believe a correction is possible and their level of put buying has dropped even further than Moe Ronn’s. Folks, apparently no one thinks the market can correct. One thing I’ve learned is that when everyone is thinking the same thing then no one is thinking.

I’m going to add to that the recent Investors Intelligence numbers. This week’s survey had bearish advisors at the third lowest reading in twenty years. This kind of complacency hasn’t led to positive results over the next month. Considering we have a cycle low coming due in the next 3-4 weeks, I’d say we have another big restriction to further sustained upside.


Some Basic concepts I have learned in the last 3 years.

1) If everyone is "betting" on one outcome, that outcome cannot be the result.
2) Your chances of being right in an investment is significantly improved if you following the of insiders and large investors when it is good to buy or sell. This isn't to say they could be wrong on timing, but odd are better.
3) Items like This week’s survey had bearish advisers at the third lowest reading in twenty years. Must be taken as a warning. Rare events such as "3rd lowest reading in 20 years" means that this is not normal. And the more abnormal a situation is, the more likely the environment will return to the "Center".

Am I concerned the market may run much higher before turning? YES! The stock market could stay strong into January.

Am I concerned the market will never again cross below SPX 1025? Not at all. It will hit lower in the next 2 years, if not 2 weeks.

Good luck as always, and keep majority of savings in cash, under FDIC insurance. Or more preferably across 3+ banks to ensure you can't lose all your savings. Be ready to start buying gold miners SLOWLY when the next selling wave eases.

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