WE HAVE A YEAR END OR SANTA CLAUS RALLY?
Updated October 31, 2013 The Dow Jones
Industrial Average managed to get through both September and October without big sell-offs. We escaped a "September
Slaughter" and we escaped an "October Massacre" -- the names given to big sell-offs in September and October
in previous years. September and October have the reputation for being the worst months for owning stocks, but we dodged
the bullet... again.
Now we have to look forward to November and December -- traditionally good months for owning
stocks. We will be looking for a year end or a Santa Claus rally. It could be starting now because the first
five days of the month are traditionally strong days for the market because this is when new money enters the market through
contributions to pension and investment plans. Stocks also tend to rally around the holidays because "good cheer
on Main Street" tends to boost expectations on Wall Street.
But with that said I must remain cautious. This
stock market has had a very strong run and I have been telling you that at any time profit taking can come with a sharp cut
to prices. Stocks
can't go up in a straight line forever.
So again, caution is the key word. In the stock market greed kills rallies and destroys
investments and ruins portfolios. Markets don't keep going up without interruption and there will be more bouts of profit
taking to come. This is why measured investments while steering clear of speculative stocks is the best way to carefully
put money into the stock market.
What I would like to see in the short term is for the Dow to stay above 15,000.
Analysts have noted
that a rise in U.S. stock prices on Wall Street means a better economy on U.S. main streets about six months later.
I am hoping that the gains on Wall Street so far this year will mean better times on Main Street America soon.
Just remember what
I wrote here several months ago after the market had a strong rally: When everyone is so happy
and so cheery and so optimistic -- and when things really look like the ball is rolling -- things can and do go wrong.
So, watch out. When things get to be too good, the fake out or suckers rallies end with a thud.
There could easily
be more whip-saw action ahead for the markets. If you are holding stocks you have to roll with the punches -- and the likelihood is that
there will be more punches coming.
I still think we are in a bull market that started four and a half years ago, but it
is a weak bull market that will frustrate many optimistic investors. You can't expect the market to climb week after
week without profit taking or a pause to refresh, because like rockets -- a market that keeps going higher and higher eventually
burns up all of its fuel and comes crashing back to earth.
This is not a market for speculation but it is a market for careful long term investing -- but
do not throw good money after bad. If you are going to invest, then price average up and do not price average down.
We could say a new bull market started four and
a half years ago when the Dow and many stocks hit their low on March 9, 2009. So what's next?
Frankly, my opinion on investing
in the stock market has not changed for several months now. I still urge caution.
However, I don't know what the future will hold. I'm
the kind of investor who wants to buy high and sell even higher-- and that's a piece of advice from stock market guru Stan
Weinstein that I've followed for more than a quarter century, ever since I met him in Florida in the early 1980s. I
don't want to bottom fish because I don't know when the bottom will fall out and a new lower bottom will form. However,
with that said, perhaps it is time to return to and continue limited stock market buying.
Every rally we have now could be a sucker rally or a fake-out
rally. That is why limited, paced buying might be the way to go now.
If you have extra money, it should be going into insured bank accounts where there is no risk
of loss. Bank accounts are "golden" now because inflation is low and the small interest paid by banks will
not be whittled down by rising prices. It's that simple-- put the money, or keep the
money in the bank. But if you have a regular, long term stock market investment plan, you might want to start
or keep making regular, long term investments in it. But remember-- I urge caution.