Avoid the News, Find an Investment Strategy

The long-running Dalbar Financial Services study shows that funds routinely deliver bigger returns than investors actually get, because individuals only buy after a rise or sell after a decline. (MarketWatch)

What would also make an interesting study is to see how these decisions are correlated with the financial press headlines. True financial journalism is rare with most mainstream news happy to pump the market up and wish for better times when it dives. There is rarely any real analysis, especially on TV - you have to look online to find that.

All of this is in the context of the current market rally. Is this time to get back in? The simple answer is that, if you haven't done so already, then don't do it now! The S&P 500 is now sandwiched between its 200-day and 50-day moving averages. As the two indicators move towards each other there will come a crunch point. Is this a sucker's rally or the real thing? That will be the time to tell. Don't add to Dalbar's statistics. This is perhaps a good time to sit down and think of a real investment strategy. There are many strategies that work, you just have to find the one that's right for you, your level of assets and your time commitments. The worst strategy is to follow the news!

Ruff Rides the Rally with Caution

Ruff Times, edited by veteran Howard Ruff, is up 20.4% over the year to date through March, according to the Hulbert Financial Digest's count, compared to a negative 10.56% for the dividend-reinvested Dow Jones Wilshire 5000.

Ruff wrote recently: "The stock market has made a dead-cat bounce, even though the returns are spectacular for short-term investors, which I am not. The long-term problem with the stock market is two-fold: 1) its earnings will decline as business sags deeper and deeper into this recession which will depress stock-market prices; and 2) the price/earnings ratio (PE) is still way above the typical PE at the bottom of bear markets. The stock market will have its ups and downs and literally suck Wall Street investors into short-term rallies as they try to pick 'the bottom.'" (MarketWatch)

Ruff's conclusion: "Sell into these rallies. The stock market is toxic and will be for several years."

Well there's confidence for you! And this from a guy who's made 20% during the last year.

Rally convinces some top performers - but not all

First the bad news: In his comment after the market close, Dennis Slothower of Stealth Stocks Daily explicitly cited Wednesday's last-hour rescue rally as cause for caution.

He wrote: "The intervention we are seeing in the markets right now is blatant and strong -- apparently hoping to convince J.Q. Public that the train is leaving the station. There is a strong and concerted effort by the Fed, the administration and their cooperatives to paint this tape higher and higher, without any pull back.

He continued: "The normal process of backing and filling has not been allowed to take a normal course, possibly out of fear that it will get out of hand and seriously challenge the new bear market low set on March 6th -- just a few weeks ago."

Slothower's point: "This kind of intervention often ends badly though, as no selling relief leads to a pressure point where eventual selling erupts into a volatile profit taking decline over a day or two that can quickly remove weeks of gains." (Marketwatch)

The other two newsletters cited seem to be building up some faith in this rally, but the above quotes have to be taken seriously. The manipulations are fairly obvious when one is looking at the markets as they happen. Interventions have to be cost-effective, so usually take place at crucial times of uncertainty... such as now.

Having rallied some 20% one could call this a new bull market - after all, a 20% drop signalled a bear market. The 800 level of the S&P 500 is important here. However, the 200-day moving average is still just above 1,000, so another 25% higher. The index has, however, broken above the 50DMA. I would wait for this level to be tested and, if holds, would be a weak buying opportunity.

Even Hot Air is Falling

Jon Stewart's scathing rebukes of the financial news network, one after another, on "The Daily Show" underline much of the public's anger toward Wall Street -- and CNBC, which many regard as the Street's virtual mouthpiece.

And with that, the network now has the challenge of convincing the public that it's serving as a watchdog for investors, and not the establishment lapdog that it's seen to be. CNBC long has sought to identify with the powerbrokers of the financial-services industry, believing viewers would find their opinions to be the most relevant form of news.

But CNBC has a big problem. Its upbeat approach has served it well in creating a buzz and building an audience. Now that millions of people have lost homes and jobs, the national mood calls for the leading financial network to change its strategy and reflect the gloomy sentiment. (Marketwatch)

As Jon Stewart chewed up Jim Cramer, the loud-mouthed CNBC poodle, he should also have included Larry "We believe that free market capitalism is the best path to wealth destruction" Kudlow, who is another shrill ranter who loves pumping up stocks but is as perceptive as a slug.

I'm glad a prime-time American TV programme has exposed the scam that is CNBC. I rarely watch it, preferring the slightly more subdued reporting on Bloomberg, which also has far better analysts.

This is a lesson to just not trust the financial press. People really must try to understand that this is a casino in which the odds are against them. Unlike a casino, there are some good times in which everybody is winning, but when the losses start happening your chips will start to dwindle. The public financial press is not there to help you, it is there to make money for itself. Try to find an independent voice who will teach you how to make your own judgements, not pump and dump stocks leaving you clueless as to what just happened.

I have no sympathy for Cramer, Kudlow and CNBC. Cramer's week also got worse as when Thomas Clarke resigned as CEO of The Street.com Inc., the online financial news site co-founded by Cramer. Oh well, looks like even hot air is falling in this bear market.

It's unlikely that Monday marked the end of the bear market

The Dow Jones Industrial Average dropped 300 points Monday, extending the bear market even further and taking the stock market down to levels first seen in the spring of 1997, a dozen years ago.
You'd think that the ensuing fear and panic would be more than enough to bring about the capitulation that contrarians have been waiting for before forecasting that the bear market was at or near its end.
But you'd be wrong.

Might this bear market nevertheless bottom out without capitulation taking place? To gain insight into this question, I analyzed all bear market bottoms since 1965, using the definition used by Ned Davis Research, the institutional research firm.

Incredibly, I found that, on average across these past bear markets, sentiment hit its lowest point 15 calendar days prior to the actual day of the bottom. That's impressive -- very few other market-timing indicators come this close.

Contrarian analysis of new market low.

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However, this average of 15 days hides a maximum delay of 112 days. Hulbert's own HSNSI is now 234 days since it hit its low. All of this suggests that trying to judge data on very few points is liable to create huge errors, or it shows that the final leg down is still to happen.