Great Depression Online Archive Issue:

"Buy The Decade"

Great Depression Online
Long Beach, CA
January 22, 2010

Inside This Issue You Will Discover…

*** “The Market’s Like a Yo-Yo”
*** Do You Get It?
*** “Buy The Decade”
*** And More

“The Market’s Like a Yo-Yo”

Down one day.  Up the next.  The stock market’s rise and fall had been as predictable as night after day…or day after night.  But yesterday that pattern changed.  For the stock market fell for a second consecutive day. 

Does that mean it will now go up two days in a row to make up for the last two day’s losses?

Several years ago we remember a similar market.  At the time, we were told the market was like a yo-yo.

Back on March 18, 2008, the DOW soared 420 points, notching its biggest one-day gain in more than five years.  The next day, while refilling our coffee cup, a seemingly intelligent person explained to us why this happened. 

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Here we recount the conversation…

‘“The stock market went up so much, because it’s been going down too much’ the older gentleman declared with the wild eyed conviction of a Baptist Preacher.

‘“The market’s like a yo-yo…’ he added, ‘…when it goes down, it then goes up.’

“This brought a grin to our face.  For we weren’t sure if he wanted us to thank him or pay him for these gifted insights.

“We elected to thank him.  And opted not to disclose that it wasn’t for the good acumen, but rather the good amusement.”

Today, some 22 months later, the DOW is down over 14 percent.

Do You Get It?

The market, of course, is just like a yo-yo…except for when it is not.  Then it is something else entirely.

The market, the old timers say, is a forward looking animal.  That means it should start trending upward before the economy begins its recovery.  But when will the economy begin its recovery…and how much will it stumble before it gets some good traction?  Your guess is as good as ours?

The DOW’s rallied over 60 percent off of its March 9, 2009 lows.  Yet the economy has rolled over and played dead.  Obviously, stocks should follow.  But will they?

The point is the stock market has a mind of its own.  Stocks go up and then they go down.  So, too, they go down and then they go up.  But sometimes times they go down and then they go down some more.  For what’s absolutely the right time to buy at one time is spectacularly wrong at another.  And what’s spectacularly the wrong time to buy at one time is absolutely right at another.

Practically speaking, you always want to buy low and sell high.  You never want to buy high and sell low.  But remember, you should not buy low and sell lower.  You see, you should always buy the dip, except for on occasions when after stocks dip, they dip some more.  That’s when you shouldn’t buy the dip…rather that’s when you should sell.    

Do you get it?  Do you see how easy this investing stuff is?

In today’s guest essay, Nico Isaac of Elliot Wave International explores the latest delusion to take over Wall Street.  No longer is it ‘buy the dip’…it’s ‘buy the decade.’

Enjoy,

M.N. Gordon
Great Depression Online

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New Year: New Economic Boom?  Why 2010 Should Be One to Remember
By Nico Isaac, Elliott Wave International

In the realm of market psychology, there’s a big difference between optimism and extreme optimism.  The first is seeing the glass half full.  The second is seeing the glass half full deep in the heart of a bone-dry desert.  In finance, it’s what we call “Buying the Dip” mentality -- when all outcomes, even losses, are cause for celebration.

We are there now.

To wit: With a new year upon us, the mainstream has already come up with a fresh tagline to define the next 360-or so days.  It even rhymes: The Bull Runs Again In 2010.  This projection is in no way “in spite of” the fact that the U.S. stock market just finished its first decade of negative returns since the Great Depression; it’s because of that fact.

See, according to the mainstream experts, this “Lost Decade” of abysmal stock performance (in which the Dow ended 9% in the red, the S&P 500 - 24%, and the NASDAQ Composite - 44%) is the very foundation on which a new bull market will apparently be born.  One economic scholar recently coined the phenomenon the “Slingshot Effect” -- the more severe the downturn, the faster the recovery. (Associated Press)

Adding to the upbeat chorus are these recent news items:

“The horrible decade has wiped out all the excesses of the previous two decades and put us back on track for more normal returns.” (USA Today) -- AND – “It may be the best of all possible worlds.” (Business News)

Back in the late 1990s, when the “unstoppable” NASDAQ began to experience regular days of double-digit drops, it was “Buy-the-Dip.”  Now, it's “buy the entire lost decade.”  And, as the Dec.31, 2009 Elliott Wave Financial Forecast Short Term Update reveals -- current sentiment readings “continue to show that stock market bears have packed up and moved to Florida for the winter.”

The Dec. 31 Short Term Update also reveals two mind-blowing charts of the S&P 500 versus Investor Intelligence Advisors Survey Percentage of Bears -- AND, the S&P 500 versus the percentage of “Fully Committed” bullish advisors since 2000.  The current reading is the lowest bearish percentage in 22 years.

Take one look at the evidence, and you’ll see that a defining pattern emerges: Low levels of bearishness have consistently coincided with one kind of market move.  Combine this picture with the other measures of investor sentiment like momentum, volume and Elliott wave structure, and the evidence tilts overwhelmingly in favor of an unforgettable year.

Sincerely,

Nico Isaac
Elliott Wave International

P.S.  Elliott Wave International’s latest free report puts 2010 into perspective like no other.  The Most Important Investment Report You’ll Read in 2010 is a must-read for all independent-minded investors.  The 13-page report is available for free download now.  Learn more here.

 

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