Market conditions are currently providing a classic example of the old axiom, "the glass is half full or half empty." You can find many examples to satisfy either case. For those who believe these are the worst of times, you only need to look at the growing number of stocks that have fallen from the $30 to $40 range. They are currently struggling to remain above $4.00. Many of these companies will be de-listed before the current correction runs its course.
The stock market has been correcting for the best part of two months. It's so volatile, it's up one day about 100 points and down a 100 that afternoon. The cost of things that most of us use are up--food, energy, rent/mortgage. Medical and dental care costs are rising dramatically.
The advance/decline line is continuing to deteriorate. On June 13, 2002, declines were about 3 to 1 over advances. The market is starting to retest its September lows. The NASDAQ is about 100 points away from its September low while the S&P 500 is only 65 points above its September low. The Dow is the exception. It is 1440 points above its September low.
I have been shifting more money to cash. When some of my stocks hit a sell signal and I don't have a replacement, I move to cash. I have about $7,000 in cash. If the Dow were to drop another 1000 points and check out the September low, I shudder to think where the NASDAQ and the S&P 500 would go.
That's the case for the downside. When you look at the market as half-full, you note that productivity is soaring. GDP is rising and capital goods buying is starting to move higher. The more fairly valued dollar is making it possible for our manufacturers to compete abroad. The devaluing dollar is also helping US exporters. Finally and probably, the more bullish aspect of this market is our nation's enormous money supply. This market would have rallied several months ago had it not been for all the negative activity coursing though the economy. These negatives turned too many investors into CD owners. Many investors have become too afraid to buy stocks, too mad at scam accounting by corporations, and too confused by all the market volatility.
Once the negatives run their course the buyers will return to the market. In the meantime, discretion is the greater part of valor. There are several stocks I would buy at this time: , , (Pro Picks stocks). There has been a shift in the buying strategy of those buying inflation hedges. They have switched to buying independent oil and gas companies. Gold and silver ran too high too fast, so these investors moved to a sector that was undervalued. was up 22.58% on June 13, 2002.
