Wednesday, October 08, 2008

Stock market wash-out... time to buy some?

As we wend our way downward in this brutal bear market one indicator has now turned positive.  What goes down, must go up... well, maybe not, but this market is showing signs of life as the credit markets un-freeze.  Just ask Santelli his opinion of the Treasuries.  The question is how many buyers have the stones to get back in.

In previous entries, I have warned against the technical breakdown of the current market, but even within bear markets we can have significant rallies.  Now we are seeing one very important sentiment indicator at all time low levels and this tends to be a screaming buy signal.  

The percentage of stocks below their 200-day moving average is an excellent look at how negative investors are towards the stock market.  At such times as now, when many stocks are trading below their long term moving average, this usually indicates that a wash out has occurred... a capitulation... and represents a buying opportunity.

This is a sign of "blood in the streets", everything is being sold.  For long tern investors, with a 5 year time horizon or longer, this may represent a very good opportunity to put money to work.  Perhaps the market will go down another few percentage points, heck we are down 14% on major averages in the last two weeks and the trend is DOWN, but in a more medium term time-frame-- weeks to months-- the chance of being higher is very good.

Be advised, we are in uncharted territory and we must all keep stocks only to the extent of our risk tolerance.  Remember that "crisis" is a combination of danger and opportunity.  Personally, I've been looking at growth stocks for the next few months, and buying only very carefully.

1 comment:

Eric said...

I've had similar thoughts.... I'll think about it...