Sunday, April 19, 2009

Plenty of Optimists...Are They Correct?

The market has been running strong for quite some time now, with little hesitation. Individual investors are mostly still skeptical. Its no suprise though, that Wall Street is going to squeeze all they can out of this rally to pull more money back to the market. I don't watch CNBC, but I'm sure they are very bullish. Here's a few more examples:

S&P 500 May Jump 70% on Valuation, Ken Fisher Says

Dubai Index Rises as Ruler Says ‘Worst Is Over’


These are just a couple of examples. My point here is don't get too wrapped up in listening to these guys that you just jump all into the market. At the same time, you can't get too bearish either, because the market does funny things. Things like rally for six weeks with no real pullback. There are lots of speculators out there, and greed has returned to the market. They are bidding up prices in stocks you don't want or need.

Big banks, with major questions still ahead are getting bid up because of some profit reports that seem a little fuzzy to me.

REITs are going nuts. Keep in mind these trusts are immensely leveraged, and many are in commerical real estate, which is weakening. They are also diluting their stocks through more stock issues.

Chinese small-caps are running again. I've been reading from traders that these often rise near the end of a market upswing.

But there is value out there. That is the key word. Look for VALUE. Don't speculate in stocks that are still troubled. I still like commodities and commodity-related stocks. They are the most likely to respond if the economy pulls out of this quicker than expected. And they have real fundamentals behind them. Each group has made a small to medium move off its bottom, with the exception of Natural Gas, which I bought last week.

I do some trading, but more in index and sector ETF's. These are a bit more predictable and don't carry earnings-related risk (we are in earnings season). If you need more volatility, you can get 2x and 3x leveraged ETF's, which will do the trick.

There is my current plan of attack. Search for value in individual names. Trade via index and sector ETFs. Avoid speculative stocks. Keep plenty of cash on hand.

Follow it if you like. Comment and tell me I'm wrong if you think so.

Disclosure: Long UNG.

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