Talk about a wild ride! The 54 percent meltdown from the October 2007 highs put a serious dent in investors’ confidence. But, not to worry, the recent 40 percent rally went a far way toward restoring their dinged up disposition.
Now is the time to put faith in trusted indicators rather than in Wall Street’s optimism and news-based forecasts. News tends to be good at the top and bad at the bottom, and is thus unfit to be the foundation of anyone’s investment decisions.
What to expect? That’s the question for many. The old tug of war between the fear of losing money and the fear of losing out on profits is stronger than it’s been in quite a while.
Stock prices had reached levels investors would have been glad to sell just a few months ago. The Dow Jones got within 100 points of 9,000 while the Financial Select Sector SPDRs (XLF) more than doubled from their March lows to their June highs.
On June 15, the S&P 500 broke the upward sloping support line created by the multi-month rally for the first time since the rally started. Additionally, volume and breadth of the advance has been declining. The breach of the support line has now confirmed the lack of conviction visible over the past few weeks and point towards a correction deeper than what we’ve seen since the rally started to take off.