Some pundits are screaming that now is the time to buy the market – now that we’ve got “blood in the streets.” But regular contributor Sy Harding – who anticipated this decline – believes we’ve got further to go on the downside…
Being Street Smart
It’s Too Early to Buy
August 5, 2011
The U.S. stock market topped out three months ago and declined 10% from its April 29 peak.
Wall Street is already telling us it’s time to but again. That’s odd since they never told us there was a time to sell. But then they never do.
It’s important to be careful what you believe right now.
The history is that avoiding large losses is much more important to long-term investment success than how much is made when the market is going up.
I covered that quite extensively in my books.
It can be seen in how the market periodically gives back several years of gains in a matter of months. Making the gains is of no importance if they are given back.
It can be seen in the remarkable long-term history of the market’s seasonality. The strategy significantly outperforms buy and hold. Yet an investor is only going to match the performance of the market in its favorable season. It wins, not every year but over the long-term by being out in the unfavorable seasons, avoiding the large losses, most of which take place in the unfavorable summer and fall months.
So we are at a point in the cycle to be careful of what we believe.
Is a 10% correction enough to factor in the current economic negatives?
I think not.
As I have noted in previous columns, my indicators triggered a sell signal for subscribers on May 8, and my downside target was a 17% correction in the S&P 500.
The surrounding economic conditions have worsened since.
Recent revisions to previous economic reports indicate the U.S. economy was much weaker in the first half of the year than previously though. Consumer and business confidence worsened in July, the first month of the second-half. The European debt crisis worsens even after the latest bailout efforts.
With the clear failure of QE2 to produce a sustained upturn, it’s not clear what governments can do to prevent the downturn from running its course.
Some on Wall Street are using the old slogan that the time to buy is when there is blood in the streets.
There’s another old saying that equates trying to catch a market bottom to trying to catch a falling knife. If you’re not careful some of the blood in the streets can be yours.
The market is short-term oversold which might produce a short-term rally attempt. But such short-term attempts notwithstanding our work is showing the market has more work on the downside before I would be expecting our next buy signal.