US stocks soared today amid news that Citigroup saw better than expected earnings for the first two on this of 2009. Stocks from every sector took off with little to nothing in their way. The rally seems to be on. But can it last?
There is an old saying in the financial industry that I love to reference, “Even a dead cat bounces.” In other words, if you drop a dead cat from the sky and it hits the ground it will still bounce. This market is no different. The Dow is going up today because for the first time in a long while there is good news. But a 300 point gain in the Dow, while a nice daily move, is a drop in the bucket to the over 7000 points that have been lost since last year.
The prevailing problem with rally days such as this one is that there is so much bad news out there and very little good news. The markets are now and always have been swayed a good deal by emotions. When investors feel good, the markets go up, when they feel bad, the markets go down. Just because the general public feels good today, doesn’t mean they will feel good tomorrow. Bottom line is that the overall sentiment of the market is still extremely negative.
Some are viewing this move as a sign to buy. If you needed a sign, you are blind. Stocks are down over 50 percent from their highs just one year ago and at that point everyone was clamoring on how the markets would continue to go up and never go down. Now the adverse is happening, everyone is thinking it will never stop going down. For that to happen, every big company in America would have to go out of business. While we will lose some marquee names along the way, they are not all going to go away. If they do our money will be worthless and we will all be fighting over cans of soup anyway.
My investment strategy is the same as it has been for years now. I look for good companies, with solid earnings and solid products. Low price to earnings (PE) is a plus too (and not hard to find these days). I also look for blue-chips that have been battered and offer an awesome dividend so I get paid while I wait. If the stock flies up for no rational reason, I sell at least some of my position and take some money off the table. No rally lasts forever, nor does any free-fall.
Now it is true that when the fear subsides that the market will probably go sideways for a good while, but there will always be solid companies with solid earnings and solid products. Those that do not buy in these down times will look back in the years to come and say, “Only if.” As I do not expect that this rally will last, I will also not wait for another rally to tell me that I should continue my investment plan.
Source: Market information gathered from finance.yahoo.com