Has the Market Already Made the High for the Year?

Market followers love to make timing predictions.  They come in all time frames and flavors:

  • The market has made the high for the day, and will now trade down.  Or the opposite.
  • This is the bottom.  Or the top.
  • We have seen the highs (or lows) for the year.
  • Or when the Dow was at 9500, would we see 10000 before 9000?

Bold Predictions

Doug Kass, on August 26th, called the high.  He was off by a few weeks and a few percentage points, but he has continued to argue for this viewpoint in columns at TheStreet.com and in appearances on CNBC.

His colleague Jim Cramer has now agreed, and recommends reducing portfolios.

James Altucher sees explosive potential, after reviewing a list of inaccurate bearish predictions, writes as follows:

The economy is recovering nicely, says Altucher, and 2010 is going
to be a huge year.  Companies that stopped making things and fired
thousands of employees last winter out of fear of a second Great
Depression will restock their shelves and start hiring like mad. The
federal stimulus, which has barely kicked in yet, will really get
cranking. Consumers will find jobs much easier to get, and the
resulting optimism (and income) will prompt them to start spending

And the market?

It's going to the moon, says Altucher.

Ken Fisher is looking for a 20-25% gain "by January" which is not quite the end of the year.  Fisher earns one of the highest ratings from CXO Advisory, one of our featured sites.

Less Bold Predictions

Barry Ritholtz on October 27th predicted a possible 5% to 15% correction, after leaning bullish for much of the year.

Our own official predictions, recorded weekly, were correctly bullish through September, but shifted to neutral two weeks ago.  We use a three-week time horizon for this forecast.

What Does it All Mean?

It all depends upon one's time frame.  Are you trying to trade the market intra-day?  Are you using a one-month time horizon?  Do you have the long run in mind?

Each investor is different — different in risk tolerance, time to retirement, time to a need for college funds, mix of asset allocation.  It is not all about market timing.

In my conversations I find that most investors are missing the big picture.  Peter Lynch (with the Dow at 4000 or so) famously noted that he could not predict the next 1000 point move, but he was confident of the next 10,000 points.

I agree, and here is the main problem:

Most investors are still responding to fear.

The current fear dates from last year, causing most to miss the market rebound.  Now many feel that they have "missed the move" and what they read reinforces the fear.

Here are some thoughts that I am sharing with my own clients:

  • My initial target for this year was the pre-Lehman level from last fall.  We have not yet reached this target, but we will.  We have averted the Great Depression that the market was forecasting at that time.
  • There are many attractive stocks.  I am selling some holdings only because there are others that offer even better chances.  Try to focus on specific company chances instead of general market commentary.
  • The analysis of economic prospects is polluted by political punditry.  Many commentators have a vested interest in a certain political outcome.  Others are trying to sell books or high commission products.  It is a minefield for the general and inexperienced reader.
  • Economic data continues to improve, despite a well-orchestrated chorus of critics.
  • The stimulus efforts have worked, and there is plenty more in the pipeline.  Most of the pop economists have the viewpoint that the stimulus will stop and the economy will fail.

Reactions on the Economy

Stimulus efforts may jump start a real move.  Check out today's auto sales data, after the cash for clunkers initiative, and you will see a real improvement — small, but a start, not a bubble.

  1. Most of the stimulus funds are still in the pipeline.
  2. The Obama Administration is committed to keeping this going until it works, including things like the incentives for home buyers.
  3. The major complaints — deficit spending — are in a different time frame.
  4. Watch Warren Buffett, who made the deal of his lifetime buying a railroad today.

It is a time to separate one's political viewpoint from one's investment viewpoint.  Those who are fighting the Fed, fighting Obama, and fighting Congress are spitting into the wind.

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