OK, we safely nailed the top and got out ahead of the sell off. Now its time to sit back and look at the signs to see just what this market decline is all about. Will this be a garden variety pullback or something worse. Throughout this posting are examples of great stocks that are holding up during the market decline.
We are starting to hear a lot of talk about the the pressure on the Fed to reign in potential inflation and strengthen the dollar verses the Fed's need to continue to stimulate the economy. This conversation is going to continue over the next couple of years. The inflation hawk argument will get more press every time the market sells off
Clearly the amount of stimulus so far has been greater than any time in history. And we all know the inflationary consequences of such monetary growth and budget deficits. We also know that this economic recovery is very tenuous. The banking system is still a mess and the stimulus money is only selectively getting through to corporate America.
Furthermore, as much as I think that President Obama may be the most likable charismatic guy in the world, he has lost control of the ship. He has accomplished nothing and is hell bent on a socialist agenda. He is under the influence of divisive pit bulls like Rahm Emanuel, Nancy Pelosi and Harry Reid. Now is not the time to bankrupt the country with an expensive health care agenda. Large budget deficits, Sean Connery and "the Chicago way" are not the answer.
All of this means that the this is going to be a long drawn out process. In my opinion, whatever the duration of our march through the desert to the promised land, money must find a home - and excess money usually first finds a home in the stock market. There is still an excess amount of money in the system. We will learn how large the monetary base remains as Fed policy unfolds.
My job right now is to monitor both the overall market and individual stocks to see how they hold up. There is a difference between a healthy pullback and a breakdown. So far the stock market pullback has been healthy. On the other hand, some individual stocks have broken down - see PALM and SOHU below. Nonetheless, many individual stocks are acting fine.
I am in no rush to call a bottom and dive into the pool head first. I would rather let someone else be the hero. It is more prudent to stand back and observe how things unfold. If this stock market pullback does not get out of hand, there will be plenty of time to buy.
My gut is that the stocks that hold up and eventually continue to run will have to be very special companies. They will be the ones that are showing extraordinary growth with special products and services. Your average cyclical or mature growth company is not going to cut it for quite some time.
So forget CAT, DE, XOM, HAL, LEN, BN, and all the other basic engines of the old economy. The companies depicted in the above charts are not tied down to the general economy. They are in their own special growth worlds and will lead the way.
Here are examples of busted stocks that will not be around to reap the benefits of the next leg up:
In short, if one wants to make money in this stock market, one must find the real sustainable growth champs. So now is the time to separate the men from the boys. People will talk about support levels, Fibonacci retracement numbers, moving averages and a whole lot of statistical mumbo jumbo.It all boils down to the same thing. To paraphrase what Supreme Court Justice Potter Stewart said about pornography, If this market holds up, I will know the buying opportunities when I see them. And if this market breaks down, I will still be in cash to live to fight another day.
For all I know at this juncture, the market can turn back up right away or take several months to do so. I'll be on the lookout to see how the market leaders hold up. The more all time highs and fast snap backs, the better things will be for the market.
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