Two positive weeks in a row?!?!?

I was out last Friday, so I didn't have the opportunity to comment on the best week we've had in a while. The market was off on Monday (the 9th), but on Tuesday we posted a dramatic recovery, followed by three more up days. 676 points gained on the Dow in four days! That's over 10%!

What sparked the rally? Well, on Tuesday Citigroup announced that they had their best quarter since 2007. As the market took off on this news, I began to get phone calls and e-mails laced with incredulity. That's it? That's all it took? We've been living through all this, and one company, one that's been struggling to stay afloat, that's fallen from over $27 to under a buck in the last year, says that they're having a not-so-bad quarter, and the market takes off? Moreover, it required an influx of BILLIONS of dollars of Federal money and outside investor capital to do it, and the market thinks that's great?!?

Not quite. The market was way oversold. Like, oversold to epic proportions. All we needed was a spark to start the fire, and the one little piece of good (or maybe just not-so-bad) news was the spark. After a slight breather early this week, the market climbed as high as 7,571. That's over 1,000 points in 7 trading days. Granted, once we hit that high of 7,571, the market has trended back down for the past two days. And we haven't been living without intraday volatility either. Regardless, we ended up for the week for the second week in a row. I don't know how long it's been since I could say that.

We're not out of the woods though. The economy is still struggling, and likely to be weak for some time. It will likely look darker still in a few months. Which begs the question: "If we think the economy is going to remain weak, and will probably look even weaker in the near future, is now the time to sell?" In a word: No. Now is the time to posture a portfolio for the coming recovery. Stocks may get cheaper in the short run, but figuring out where that bottom is will only be done in hindsight. In the long run, this is probably one of the best opportunities to buy stocks that any of us will ever see. I'm not saying to push all your chips to the middle of the table and go all in, but that there are opportunities everywhere to buy great companies while they're on sale. This is the stock up sale, and it's not the generic canned beans on aisle 5. It's the good stuff. The stuff we wouldn't ordinarily buy because it's always too expensive.

It may be scary to be investing when the conventional wisdom says that the stock market is a losing proposition, but I've found that conventional wisdom is rarely wise. Most investors underperform the market because they are only comfortable buying in when it's at its high, and don't want anything to do with it when it's at the lows.

Another week, another 7%, BUT...

As awful as last fall was in the market, I truly am more frustrated by the current environment. The market continues to drift downward, dragging everything with it. I can understand the financials being hit (Citigroup is now a penny stock!). I can understand the autos being hit (GM is at 75 year lows). I can understand economically sensitive sectors being hit (homebuilders, luxury goods, etc). But solid companies that continue to earn money are falling right along side of them. Why? It's not because they are bad companies, or that people are panicking and selling out. It's simply because there are no buyers.

The economy continues to languish, with no end in sight. Our representatives in Washington keep coming up with more ways to spend our money. So what do people do in times of uncertainty? They hoard cash. Never mind that the best return they can hope for is barely above zero (at least it's positive!). The cash hoarding will continue until there is a catalyst that entices investment. What might that be?

Positive news of any kind would be a GREAT catalyst, but I don't see anything on the horizon. Lately any news that has been less bad than expected has had at least momentary positive effect. I would suspect that simple exhaustion might give us some upside, or at least a relief rally. By this I mean that investors simply get frustrated earning 0.20% on their cash and begin thinking that stocks selling for less than the value of their assets look awfully attractive.

At present, (many) stocks look as cheap as they ever have. There is tremendous value in a lot of these companies, and it is being ignored out of fear and frustration.

And now for a little good news: despite being down about 7% for the week, both the Dow and the S&P 500 closed up today, with the Dow climbing roughly 150 points in the last half hour of the day. That may be pretty significant, as most traders do not like to be exposed going into a weekend.