Tuesday, November 25, 2008

Roller Coaster

If you follow the stock market at all, you know that it's been a roller coaster lately, zooming up hundreds of points, zooming down hundreds of points, sometimes on the same day. I've written a bit about stocks in past entries and here's a bit more for today:

Today (yesterday, actually since I am writing this on a Monday) the Dow Jones Industrial Average ended 397 points higher than it closed on Friday. For a time it was up over 500 points. Unlike many other recent days, it didn't bounce back and forth with huge swings from positive to negative and back again; instead it was uniformly positive.

What caused this? Obama's announcement that he wants to jump start our economy? The massive bailout (another one, yawn..), this time for Citibank? Our economy is still pretty miserable. Did things change so radically today that it justified the upward spur in prices? If you look at the past few weeks, we've had several other swings of this magnitude, only to be followed by sharp declines shortly thereafter.

Personally, I believe that our economy is going to improve, sooner than later, and that the market is going to head back steadily upwards. But I also believe that until this happens, it is going to experience the same wild swings as it has in the past weeks because people just can't make up their mind which way things are headed. So as much as it went up today, I'm expecting that to be erased and then some within the next few days.

What that means to me are more buying and selling opportunities coming up, until things get stabilized. I don't feel our present economic state warrants any sort of short-term optimism but in the long run we'll climb out of it.

Again, more of my layman opinion says that the real bottom of the market will appear when prices level off at some low level, the volume of trades declines, and the span between high and low prices on any given day remains relatively constricted (ooh, do I sound like an economist? I hope I'm not that boring). By that time, everyone who wants to sell will have sold, meaning there's no more downward pressure on the stocks, and everyone will be sitting around waiting to see what happens. In other words, we'll have an apathetic market.

Gradually, more and more people will get back into the market because it seems that it isn't going to go down anymore and they'll have overcome their fear of further declines. That will begin to drive the prices up, and in time rising prices will sneak up on us and lead to a a snowball effect.

It's always darkest before dawn. Just like market highs which peter out because everyone has bought and there's no one left to buy, so the low will occur because everyone has sold and there's no one left to sell.

If you step back and look at things in historical perspective and also with the idea that capitalism is going to continue to flourish and so is America, then at this point in time stocks are dirt cheap and now is the time to buy. Conversely, when everyone and his grandma were scooping up stocks, it made sense that the buying frenzy couldn't continue because sooner or later people would run out of money with which to buy more stocks.

Yet when we get to the top we want to believe it's going to continue and we can squeeze a little bit more out. And when we get to the bottom, we're afraid that there's still more bottom to go, so we wait a while longer. Everyone's looking at the next guy, and no one wants to stand out from the crowd.

Anyway.. just thought I'd throw in my two cents about the stock market. I'm eagerly looking forward to the upcoming days, weeks and even months to see what happens, and to see if my bottoming out and subsequent snowball effect is borne out.

What makes me think my opines have any merit? Well, nothing, really, but it seems the so-called "experts" are no better at calling the shots, either. Heck, put me on PBS - I can pontificate with the rest of them!

Meanwhile, here's a song to reflect the tumultuous nature of the market these days.

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