Market Woes
Friday, June 8, 2007 | Teeka TiwariRating:
For the last month or so, I've been telling my Point & Profit subscribers that the market was laboring under the false assumption that interest rates were going to be cut. It has been my assessment that the weakening US Dollar and accelerating energy prices would, in fact, make any attempt to cut rates very difficult indeed for the Fed. It appears that we are starting to see this thesis beginning to be adopted by a wider section of market participants.I don't know that we go straight down here because after a week of negative action, technically speaking, most issues are highly oversold and probably due for some kind of bounce. It's impossible to tell how extensive the damage will be on the next market downswing, so I want you to remember that regardless of how bad it may get, do not lose perspective. Hopefully, by now, if you are a faithful reader of this column, you will have begun to see the repetitive nature of the stock market.
I've often commented before that the market is very much like nature in that there are different seasons. Imagine how absurd it would be if we resented nature at the coming of each change of season. The same is true for the stock market. Markets swing from elation to despair; to allow yourself to share in either emotion is a recipe for failure.
I don't take the market personally, the same way that I don't take the weather personally. Neither should you. This is a key lesson that I feel compelled to share with you.
At this time, it appears that we are transiting from a "Summer" market into a "Winter" market, BUT until we see the New York Stock Exchange Bullish Percent reverse into 0's, I cannot make that definitive call. The key during times like this is to have a very specific handle on which positions in your portfolio are long-term investments and which are short-term investments.
When markets get overbought, as they are now, it's prudent to scale back on your short-term investments. It's also very tempting to take profits on long-term holdings because nobody likes to see gains evaporate. This is a very tricky subject, though, because stocks undergoing multi-year bull runs can sometimes experience very sharp pullbacks during broad market corrections. Take a look at stocks like Microsoft, Dell, Yahoo and eBay during their high growth days, and you will see that the BIG money was made in the holding, NOT the trading.
This is the way I feel about the current long-term trades we have on at my newsletter service at Point & Profit, and I am sure that you probably have several stocks in your portfolio that come under the same heading. The key to identifying good long-term trades is in having a firm grasp of the long-term earnings power of the sector that the stock happens to inhabit. Does your stock's sector have at least three years of high growth earnings power ahead of it? If so, then these stocks must be held because they have much higher to go.
The fundamental earnings drivers behind the resource stocks are, in my opinion, a PRIME example of a group with stellar long-term earnings power backed up by the fundamental seismic changes rocking China and India. It is not every day that two of the world's most populous countries experience an industrial revolution at the same time!
Think about that!
However, sitting through vicious market drawdowns can be emotionally painful and requires enormous confidence in one's analysis. But for those investors with a touch of imagination and a gut made of steel, it's an incredibly exciting time!
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“Let the Game Come to You.”
Teeka Tiwari
Chief Investment Officer
Point & Profit
