If you fell asleep in the summer of 2000 and woke up this morning, you wouldn't think much has changed from a financial point of view. Perhaps the Canadian dollar's a whole lot better, perhaps the world markets are a bit misaligned by comparison. There may be some fancier websites--and what's this Google thing?...where is AltaVista? What happened to Ford, Microsoft and Yahoo!? Hey--look at Apple! But all in all, the market overall produced little RipVanWinkle effect from then to now. Bulls seem to be stomping uphill and the bears are off hibernating--or are they?
What Goes Up Eventually Goes Back Up
My first exposure to market investing was in 1999. The internet bubble was rising high and everyone I knew jumped into the day trading biz. I was enamored with the web, having riden the wave of affiliate sales before the majority of home-office net-hounds jumped into the game. By the time I joined the stock trading hype and signed up with an online broker, the markets had already begun to crash and my few purchases amounted to penny stocks, some of which still lie in tiny graves in my brokerage account as shadows of the giants they once were. I traded in my affiliate status with Linkshare for an application to university and moved my focus from the internet to the library for the next few years.
Enter 2004. Having stockpiled student loan debt amounting to well over 80,000, thoughts of investing, let alone saving money were abandonned for the more pressing issues of paying down debt, aquiring a mortgage, and a new profession. Saving money was at the bottom of the to-do list.
Then one day, out of the blue, I turned 45. Hellish and horrid day that was, not because I felt old, nor because I looked old, but because I suddenly realized that in 20 rather short years I was supposed to be able to retire. And for the first time in my rather penny-poor life, it dawned on me that I had better make a plan.
Missed the Bottom--Again?
And enter 2011. I missed investing in the last market bottom--not for lack of awareness. My colleagues were all lamenting their shrinking portfolios. My parents weren't certain retirement was in the near future after all. Companies that were once giants were suddenly exposed for the lack of value their stocks actually held--yet again. I watched as the market climbed and then paid off the last of my high interest debt this past fall. Now what? Do I enter and invest? Do I sit on cash? Do I wait for another bottom that won't come or invest in a raging bull that's about to crash?
Are We Topping Out or Just Getting Rolling?
In my search for an answer there appear to be four somewhat contrary schools of thought on this Winter 2011 Market:
1. We are beginning a Secular Bull Market that will go on for years to come with a few dips and alot of highs as the world money mongers try to avoid a deep dark depression in a wounded and post-recession world economy.
2. We are in the middle of a Secular Bear Market that actually started back in January 2000 with a few highs on the way down, down, down.
3. We are reaching the top of the market and it will soon glide slowly down to the Spring 2009 low.
4. We are half way up a bull cycle and other than a few corrections here and there, the next big swing won't occur until 2014.
And this from the "experts"?
Why is it that no one can predict the market? -- Because no one can predict the future with any great certainty.
One can speculate based on the past and add a few variables here and there for spice and flavor, but in the end, human sentiment drives the market stronger than news and value--which would intuitively have us lean toward the "past repeats itself" model of human nature as a more reliable predictor of what's to come.
Why is Market Direction Such a Mystery?
Market Cycle Patterns
According to Walter Bressert in a February, 2011 article on newmonster.org, the order of the universe is cyclical and markets over time do in fact move in similar cycles. He notes a 4 year cycle in the US stock market that dates back to 1789. It averages 49 months from low to low and 36 months from high to high, leaning to the right in bull markets and to the left in bear markets.
Market Top or Minor Pullback?
In a February 25th, 2011 article at seekingalpha.com, Cam Hui feels that the current market weakness is a minor pullback and correction to be bought rather than an intermediate term top. Although Mr. Hui feels the top will develop later in the year, his technical indicators using a inflation-deflation timer model remain bullish and his secondary indicators are still trending toward "risk-on" trading. Hui believes that current market weakness is based on the effect of fears of Libyan oil flow barriers on a still fragile global economy.
Secular Bull or Bear?
Secular markets are basically described as those that "go on forever". According to a February 27th, 2011 article by USA Today reported on pittsburghlive.com, there are two types of bull markets--one that lasts a couple of years and mega-bull markets that go on for years. The current bull market which reportedly started in March 2009 will soon be 2 years old--the average lifespan of a cyclical short term bull market. The article quotes Tim Hayes of Ned Davis Research who believes that gains of late have occurred within the context of an ongoing long-term bear market that began in January 2000 when overpriced tech stocks crashed.
Thirty-four cyclical bull markets have occurred since 1900 with average gains of 86 percent. Four secular bull markets have occurred in the last 110 years that have lasted from 6 to 24 years. There have been 2 secular bear markets including 16 years between 1966 through 1989. According to Laszlo Birinyi, bull markets have 4 phases, including initial huge gains off the bottom, price consolidation, acceptance that the market will continue to rise, and finally exuberance that the gains will never end--which is when the top is reached and the market crashes. He sees the bull market in consolidation phase and forecasts a major uptrend ending in the middle of 2014.
Warning Shots for Market Correction?
Overextended Indexes: Sy Harding's February 25th, 2011 article at businessinsider.com points out global market corrections that occured in China, Brazil, India and Hong Kong in late 2010 due to rising inflation. As the North American market doesn't have an inflationary issue currently, markets are grinding along in the bull herd. The little spike from Libya's oil scare didn't make more than a blip on the Dow and SP500's long term charts. He considers this simply a warning shot. He feels that major market indexes are over extended above long-term 200 day moving averages and will take a 10 - 12% correction to retest support.
Oil Trading Over $96: Harding points out that the 2003-2007 bull market ended in October, 2007, when oil reached $96 a barrel and the recession began three months later. Oil traded around $97 at the end of last week.
Applications for mortgages and home sales at a 15 year low.
GDP for US came in lower at 2.8% than the expect 3.2%.
What Does This Mean for the New Investor
For me, I think I'll start researching ETF bears and how to short stocks over at my new discount brokerage, then consider the possibility of hanging out for a couple of weeks on the bench.
Or maybe I'll just keep buying Mr. Buffet! BRK.B:US
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