By Keith Fitz-Gerald Investment Director Money Morning/The Money Map Report
For many investors, the last 12 months have felt like a cross between Dante's "Ninth Circle of Hell" and Mr. Toad's Wild Ride.
Even so, after Tuesday's market action - which saw the Standard & Poor's 500 Index rebound from a 12-year low to gain 6.4%, and the Dow Jones Industrial Average jump 5.8% - many investors are no doubt wondering if it's time to pile in.
It could well be. But then again, it just as easily could be a precursor to another financial drubbing - the kind of bear-market "head fake" that I've correctly warned investors against on a number of occasions during this financial crisis. Given that perspective, I continue to believe the game we've been forced to play as a result of the credit crisis is still far from over.
In short: One day does not a rally make.
And that's why Tuesday's almost-euphoric run-up in stock prices seems less like a testament to savvy bailout strategies than it is a revelation of how desperate investors are right now for any glimmer of hope. The notion that a single bank - even if it is Citigroup Inc. (C) - could single-handedly cause this kind of an upside rout on a leaked note from its embattled CEO is absurd.
For a true rebound to take place, two things have to change. The first is sentiment. And the second is business conditions. When it comes to igniting a truly sustainable rally, history demonstrates time and again that those two catalysts go hand in hand.
That's not to say we couldn't see a rally of 20% or more from here, or that this mini-rally couldn't last for a while. Bear-market rallies have a nasty habit of doing that just long enough to draw in additional investors, only to chew up their money and leave them with big losses when the rally rolls over.
Bear-market rallies are actually more common than most people realize and the one we experienced late last year is a great case in point. It started on Nov. 21, and advanced a total of 20% in the subsequent seven weeks. Then it headed south again.
Obviously, I don't know everything and I expect I'll hear about it if I'm wrong here. But in a market as unpredictable as this one, and with the insights I wish to share with you, I am less concerned with short-term rallies than I am with long-term investing success. That's why - if you're thinking about getting in right now - I urge you to first carefully review both sides of the argument.
In the "no-way-this-is-real" department:
We've carefully studied the reason Tuesday's updraft may be nothing more than a bear-market rally. Now let's look at the other side. In the "this-might-stick" category:
Going forward, the biggest issue to watch is corporate earnings. Many investors don't realize it, but the final quarter of 2008 marked the very first time in history that the S&P 500 reported negative quarterly earnings. So, despite all the catalysts we've detailed for you, where we go from here will likely be determined by who earns what and when they earn it.
And just where is "here? " Even after Tuesday's manic rise, we're now sitting just above the market's 12-year lows. History shows we've been here twice before: Once following the Great Crash of 1929, and once in the early 1970s. Both cases turned out to be the kind of phenomenal long-term buying opportunities that I said this financial crisis will turn into once the carnage stops.
What's important now is to maintain perspective and to really decide if you are a speculator in search of short-term gains that can help you recover your portfolio, or a true "investor" who is seeking long-term gains. If you decide you're the former, you may be sadly disappointed in the months ahead. But if you're looking for the latter - and you're willing to ride out the ups and downs that are certain to come - it's probable that there's more potential upside available now that we're at these 12-year lows than there is still more downside.
As regular readers of Money Morning know very well, I'm an advocate of having a disciplined and well- thought- out investment plan that right now ought to incorporate the following elements:
[Editor's Note: The ongoing financial crisis has changed the investing game forever, making uncertainty the norm and creating a whole set of new rules that will quickly and painfully determine the winners and losers out in the global financial markets. Investors who ignore this "New Reality" will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive - they will thrive.
In fact, Money Morning Investment Director Keith Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as "The Golden Age of Wealth Creation." His key discovery: Despite the gloom brought about by the ongoing financial crisis, we may actually be standing on the precipice of the greatest investing opportunities we'll see in our lifetimes. To capitalize, today more than ever, investors need to employ the correct tool.
In his newly launched Time Trader Pro investing service, Fitz-Gerald feels that he's found that needed device. Time Trader Pro, developed after more than a decade of work, is a new computerized trading model that's based on a mathematical concept known as "fractals." This system allows Fitz-Gerald to predict price movements of broad indexes, or of individual stocks, with a high degree of certainty. And it's particularly well suited to the "trendless" markets that are the norm today. Check out our latest report on these new rules, this new market environment, and this new service, Time Trader Pro.]
News and Related Story Links: