Tuesday, December 15, 2009

Going Nowhere

Every morning, we wake up in a cold sweat over here at Magnum Opus Financial wondering: "What is going to happen today?" Instantly we grab an iPhone and click on the CNBC App which inevitably goes straight to the PRE-MARKETS where we see whether this day "looks" like it'll be easy or hard. Then we get ready, find something to eat and make our way to the office.

This morning, when we brought up the PRE-MARKETS, we see a very telling chart of the DOW, S&P 500, and NASDAQ over the last 30 days. We have had 4 dips in these indexes over that period of time, nearly all of them reaching the same levels and then returning back to the same level as before. Now, from an absolute basis, the markets do claw higher and higher each time we come back from the dip. But it's the fact that it claws higher that we can be OK with this market going higher. Compare the recent period from November 1st to today, and it's really not that exciting. Really, since August 14th (nearly 5 months ago) the market has been forming higher lows and higher highs. The slope (the mathematical term that means the angle of the line, or how dramatically it rises or falls), is really slowing down since November 9th...it's almost a straight line.

We need a market that is NOT parabolic (like the period from March 9th to May 8th). See, the other side of a parabola is the same as the upside...just straight down. When we saw the S&P do nothing from May 1st to July 14th (seriously, the level of the S&P at the beginning of the period is nearly the exact level it was at on July 14th, at the end); it went much higher from July 14th to November 1st. Bottom line, we may be going nowhere over the next month or so...and that's just fine. We need periods of consolidation, or even decline for this market to stay healthy. Our favorite saying is: "The longer the base, the higher in space." There is nothing wrong, we think, with believing that we are building a base right here around 1100 in the S&P that will end up being a very good support going forward.

As long as we keep seeing signs of improvement like Exxon buying XTO and banks returning TARP, we think things really are improving. So, do your homework, find individual stocks of good companies that have gotten too cheap, like Terex (TEX) and Molex (MOLX) and don't forget to take something off the table when you're up big. Just know that for now, the indexes may just go nowhere for a while (but that doesn't mean your stock has to).

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