HAUKE: Market looking better, but remain cautious

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Coppock curves, 200-day moving averages, declarations from government officials. These things all relate to different signals that seem to have declared an end to the bear market. However, making serious, long-term financial decisions based on a few short news headlines can send an investor into a permanent tailspin. A little perspective may help.

Readers of this column may recall my thoughts in March about putting some money back into the stock market. I noted technology, specifically semiconductors, as an opportunity to make a solid return in the following months. Those plays have worked well and, as of today, I still believe the stock market can continue to work higher from current levels.

Now, for the perspective. Recent headlines would have you think it is time for heavy, multiyear equity investing. Don’t go all in, and stay in liquid investments. We might be in the middle of a summer rally that is an extension of the move that began in March, but don’t forget that September is coming. And September is followed by October.

If March 2009 was truly the bottom of this bear market, then at the very least we can expect some kind of retest of that area by October. The last bear market may have ended in October 2002, but you didn’t want to get heavy into stocks until March 2003.

If we are in a new bull market, expect to see the Standard & Poor’s 500 fall back to 775 by the end of October after moving higher into July or August. If this entire move from March is nothing more than a bear-market rally (the move is rare as a bear-market rally, but not unprecedented), new lows on all of the indexes can be expected within the next nine months.

The positive aspect of the move since March, besides higher prices, is the ability to slowly convince the public that it is safe to get back in. This slow process has the effect of creating a buy-the-dip mentality that should last at least a few more weeks, and possibly a few months. I have a strange feeling, however, that the public will be sucked in fairly quickly this time, which could leave the market very vulnerable over the next six months or so.

The year 2008 was a bit of a reality check for investors all over the world. I’ll bet if we lined up a million people and asked them if they thought a 50-percent total loss was even possible, 99 percent of them would say no. Here is another possibility that has the potential to catch 99 percent of the investing world off guard. Bear-market rallies end abruptly, and months worth of gains can evaporate in days or weeks.

In 1932, the Dow Jones industrial average bottomed after 32 months of brutal selling and a total loss of 89 percent. Then it rebounded 93 percent in only three months. All that action was followed by a nearly complete round-trip close to the lowest levels of the Depression. This entire process took only seven months.

The bottom line is that it is still OK to be in the stock market, but stay in positions that can be easily sold. The promise of big returns can quickly turn into regrets if you are trying to sell small-cap stocks and there are no buyers around.

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Hauke is the CEO of Samex Capital Advisors, a locally based money manager. His column appears every other week. Views expressed here are the writer’s. Hauke can be reached at 203-3365 or at keenan@ samexcapital.com.

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