The next few weeks will be critical to the US market. The S&P500 could go either way. We can see from the following chart that, despite the recent strong rally in the Dow to 10,000 and the S&P500 to 1100, the market is still in a downtrend. This condition will be challenged in coming weeks. The market has been celebrating the positive earnings recovery, though one has to acknowledge several things:
1. Tight credit conditions
2. Continued job losses
3. Prospect of inflation
4. The role of government stimulus in preserving economic activity
For this reason I am expecting US equities to fall in coming weeks. One might wonder however if this gloomy forecast is premature. Afterall the US can keep printing money, so until the day when inflation undermines the impact of further stimulus, the US Fed can support the equity market for a time yet. The market might however see it another way, so this is good reason for a pause. This also adds to the allure of gold.
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Andrew Sheldon
www.sheldonthinks.com
Investment Strategy
If you are investing for the long term, you still need an investment strategy. Dont be fooled by the rhetoric of fund managers. The reason they advise you to 'buy & hold' is because they dont want to compete with you in sell-offs. Markets and industrial sectors are cyclical, so they demand trading to get the best returns. Fund managers actually cant hope to match the performance of small investors (if you are half good) because they have to manage huge amounts of funds and charge you a fee besides.
MY ADVICE is (i) look at a range of market indices and decide upon what level of correction would give you the justification you need to get in & out of the market. It might be a 5-10% retracement or a break of trend. (ii) Diversify if you dont have an intimate knowledge of the company or management. More than 30% in one company is aggressive.
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