Tuesday, November 3, 2009

Well, I'm Finally Wrong!

So, hell has apparently frozen over and I am finally wrong about how the market was going to perform during the month of October. I assumed the run up of the market was a perfect situation for October's options Friday to cause a large drop and send the DOW tumbling towards 8500. However, the volatility was very subdued and as it turns out the DOW is sitting at about 9700. So, my bearish outlook has betrayed me and caused a pretty large miss by my prediction.

When confronted with a big miss, you can do one of two things; dwell on the mistake or find out why the market behaved the way it did and take something away from that to aid you in the future.

I chose the latter and this is what I came up with. The market is completely F'd. The US dollar is surging when Bam Bam is going buck wild printing money. The value of gold is off the charts at the same time. Consumer confidence is at an all-time low, yet stocks have surged despite the most recent pull back of a few hundred points off the DOW, which by the way was triggered by the DOW breaking the 10,000 point barrier. We finally get one quarter with an expansion rather than a contraction of the economy and now all the analysts are stating the recession is over. The recession may be over according to the definition, but in reality, the recession is simply taking a break before it lets loose again, once the market's euphoria has abated. We are not out of the woods by a long shot. Still with the threat of major inflation lurking for the next decade, stocks are still the best way to hedge against inflation.

For now, the best bet is still to utilize dollar cost averaging and refrain from the indefinite buy and hold strategy of the old days. You can still buy and hold, but you still need to keep an eye on all of your holdings, even if you have big boys like JNJ, XOM, PG, etc. No company is safe from going belly up. For now, keep and eye on things and see where the future takes us.