There is nothing like an 1,100 point in the Dow to get you wishing that you were fully invested. I thought the market would rally, but I have been surprised that we did not go lower and also at the size of the rally. So what do do now? Has the market reached bottom and we are in the beginning on a new bull market? Or is this simply a rally within a bear market? Honestly, I am not sure. The economic conditions are still poor, and I don’t think that earnings projections have fully taken into account the recession that we are in. So based on that, stocks should head lower as earnings estimations are cut.
But when the market loses 20+% in a little over a month, you have to expect that stocks have become oversold and that there will be a rally, which is what we are seeing.
So I am holding my cash where it is, and not chasing the market at the moment. Buying when the market is making this kind of rally is never a good idea.
I don’t think we have finished with all the margin selling from the hedge funds and that I expect that will put a damper on any long-term bull market. But once the earnings have been readjusted, and the hedge fund selling has fallen, then I think we will be in the beginnings of a new bull market. My only question, is what level will the bottom be? Will the market drop back and retest the 8,000 levels on the Dow?
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