RSS feedWhile I wrote several posts on creating defensive portfolios, I personally feel that there are many opportunities still available in the current markets and to a degree am very excited about the recent sell off as it should represent a nice buying opportunity. The week began with some moderation in the volatility. The market, overall, remained rather orderly for the rest of the week though it was punctuated by several truly poor days in the market. By mid-Thursday, the Dow Jones and the S&P were near 10% off from their recent highs, completing what has essentially been a pullback of near 10%. By the close on Thursday, however, investors had rallied and I was quite pleased with the appearance of hammers throughout the charts of several of my personal holdings as well as in the charts for the DJIA, S&P 500, and the NASDAQ. This signaled a possible climax to the market sell-off and the re-emergence of buyers to bid prices back up. Coupled with the 10% pullback, I was fairly confident that the bottom to this correction had arrived, or at the very least, is around the corner.
Little did I know when I went to bed last night that the Fed was going to provide just the catalyst needed to revitalized stunned investors. A 50 basis point reduction in the discount rate though coupled with a statement that the 5.25% Fed Funds rate will remain in place for the foreseeable future, seems to have quelled fears of liquidity for the time being though I wonder whether or not it has any material implications on monetary policy though I think this move altogether appropriate. For reasons why check out this post from ValuePlays which echoes my thoughts exactly.
Add in the fact that three major retailers, Nordstrom, JC Penny, and Hewlett-Packard (okay, not really a retailer but still a consumer brand) reported strong earnings with the first two in the list raising guidance on the year and there’s reason to be cautiously optimistic. As I’ve been saying all along, don’t count the American consumer out and don’t buy the CNBC sky-is-falling subprime rhetoric. I admit that it’s bad and subprime has already created ramifications across the financial markets by nearly crippling credit markets, but its true damage is likely not cause for a Cramer-like meltdown.
If you took your money out is it time to jump back in? Well, it’s hard to say. Now would see as good a time as any as the bargains caused by irrational selling will likely be the first to evaporate. Though, we should see relatively good pricing for some time yet and I would think this initial round of buying could prove a bit fleeting. Watch over the next week to see where the markets go. The big rally in the last day and a half was likely due to traders attempting to exploit oversold stocks, short sellers getting caught covering, and a little over exuberance over the Fed’s decision to lower the discount rate. I would recommend continuing to narrow your investment sphere to favor quality over potential and, unless you do it for a living, to avoid trading and invest with a longer time horizon. Investors will likely remain tentative over the next week or so, but hopefully we see some consistent green in the trading ahead and set ourselves up for a nice run into the new year.
