Stock market trading is sometimes analogized to sailing. Sailing is a combination of art and science, and even the best sailors are subject to the whims of wind and tide. Hence, practiced sailors are good at making the most of a good opportunity and losing as little time and distance as possible when the fortunes of wind and tide are against them.
Doesn’t that sound an awful lot like stock market investing? Of course! The best investors are right, at most, 50 percent of the time, and, usually, the percentage is closer to 33. However, skilled investors take advantage of favorable conditions when they’re right by locking in gains and mitigate their losses by recognizing quickly when conditions have turned or their assumptions were incorrect. Poor investors fail to recognize their flaws, and instead of acting to stanch losses, they make more mistakes, and to continue the sailing analogy, they broach to and are destroyed by the sea. In addition, seasoned investors work often at the mercy of things like macroeconomic changes, market sentiment, technical chart setups and fundamental business changes. These factors can whipsaw on us just like the wind can seem to blow from any, and seemingly all, direction.
So, using our sailing analogy, the U.S. stock market seems to be stuck in the summer doldrums. After an impressive run off the lows of March 9, 2009, a lack of economic news, continued uncertainty over the macroeconomy, and general exhaustion have the markets very quiet and subdued. Without a catalyst to push the market higher, or another economic disaster to send it lower, we seem to be drifting aimlessly between roughly 890 and 950 on the S&P 500.
There is some reason to be optimistic though. Consider that the rally began when the economic data showed that the world was not coming to an end. Then consider that the “waterfall” decline in equities began last September when Lehman Bros. went bankrupt. The Friday before that bankruptcy announcement, the S&P 500, having declined throughout 2008 before the big drop, was sitting at 1,250. Time and economic data will tell whether there is enough wind to fill our sails to get back to that point (the S&P 500 is currently around 920, so that would be a tremendous upswing). However, it seems reasonable that the market will continue to rise as more signs of a bottom to the recession emerge – whether it can continue rising in the face of less-than-spectacular earnings is another story, and one this author will be watching carefully.
This week should prove to be somewhat uneventful. The lack of volume in the markets will likely continue as many traders will be on vacation. Also, this is a short week as the markets will be closed on Friday to celebrate the Fourth of July holiday.
U.S. Equities Stuck in Doldrums
Posted by Gregg Killoren on June 29, 2009
Stock market trading is sometimes analogized to sailing. Sailing is a combination of art and science, and even the best sailors are subject to the whims of wind and tide. Hence, practiced sailors are good at making the most of a good opportunity and losing as little time and distance as possible when the fortunes of wind and tide are against them.
Doesn’t that sound an awful lot like stock market investing? Of course! The best investors are right, at most, 50 percent of the time, and, usually, the percentage is closer to 33. However, skilled investors take advantage of favorable conditions when they’re right by locking in gains and mitigate their losses by recognizing quickly when conditions have turned or their assumptions were incorrect. Poor investors fail to recognize their flaws, and instead of acting to stanch losses, they make more mistakes, and to continue the sailing analogy, they broach to and are destroyed by the sea. In addition, seasoned investors work often at the mercy of things like macroeconomic changes, market sentiment, technical chart setups and fundamental business changes. These factors can whipsaw on us just like the wind can seem to blow from any, and seemingly all, direction.
So, using our sailing analogy, the U.S. stock market seems to be stuck in the summer doldrums. After an impressive run off the lows of March 9, 2009, a lack of economic news, continued uncertainty over the macroeconomy, and general exhaustion have the markets very quiet and subdued. Without a catalyst to push the market higher, or another economic disaster to send it lower, we seem to be drifting aimlessly between roughly 890 and 950 on the S&P 500.
There is some reason to be optimistic though. Consider that the rally began when the economic data showed that the world was not coming to an end. Then consider that the “waterfall” decline in equities began last September when Lehman Bros. went bankrupt. The Friday before that bankruptcy announcement, the S&P 500, having declined throughout 2008 before the big drop, was sitting at 1,250. Time and economic data will tell whether there is enough wind to fill our sails to get back to that point (the S&P 500 is currently around 920, so that would be a tremendous upswing). However, it seems reasonable that the market will continue to rise as more signs of a bottom to the recession emerge – whether it can continue rising in the face of less-than-spectacular earnings is another story, and one this author will be watching carefully.
This week should prove to be somewhat uneventful. The lack of volume in the markets will likely continue as many traders will be on vacation. Also, this is a short week as the markets will be closed on Friday to celebrate the Fourth of July holiday.
This entry was posted on June 29, 2009 at 7:00 am and is filed under Investing, Market Commentary, Stocks. Tagged: Equity Markets, Investing, Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.