Just looked at a quick daily chart of the Dow Jones Cash. Last March 2009, we traded to a low at 6,440. Our recent 14 month high, yesterday, Monday Dec 27th, was 10,585. A whopping 4,145 point move from low tick to high tick. Similarly, our low in the SP500 cash was a scary 666 last March… Today we traded up to 1,130 for a new 14 month high. 464 points. From the darkest depths of fear and loathing to today’s new highs.
You can make of it what you like. The first quarter will tell us volumes. If new money comes pouring into these indexes, it could be the volume explosion we’ve been looking for. A fresh influx of money could push us back up to 11 or 12,000 in the Dow and the 1300 level in the SP500 cash index.
At these levels, all that’s required is 1) a sense of stability 2) a drop in unemployment and 3) cautious bullishness on the part of the US consumer. Get a good mix of those three, and this rally will be sustainable.
I’d also argue that we need the ‘experts’ to be touting a double dip recession, a potential investment crisis on the horizon, or in other words any sort of negative, worrisome issue to keep investor’s afraid to fully commit.
When everyone on CNBC is bullish again, and talking about the next super merger, or power lunch, or pinnacle lifestyle of some CEO living like a king with 8 houses, 50K dollar shower curtains, etc, then that’s the time to buy your puts.
Stories about frugality, executive pay cuts, dismal news about this or that…. Those stories will be the underpinning to a continued rally.
The first book I read about investing was Peter Lynch’s One Up On Wall Street. He managed the Fidelity Magellan fund, starting with about 2 dollars under management and growing it through the 80’s and early 90’s with phenomenal returns in growth stocks.
He started the book with a forward about how he was on vacation in Ireland during the 87 crash. He was on his back leaning out to kiss the Blarney Stone when he got the news. Probably at that time he had one of the first cellphones, one of those 6lb Motorola specials.
One line he mentioned in that book was he could always gauge the best time to be long stocks. It was when he went to cocktail parties in Boston, and when people found out he was a stock broker, they would slowly melt away to the bar or buffet table.
He knew the time to be getting to a cash position, on the other hand, was when he was surrounded by doctors and dentists (the two worst investing groups on the planet) who were telling him about their latest greatest stock pick, or how they just bought a new Summer home from their last IPO.
From my perspective, its still looking like the times where the last thing people want to talk about is their stock portfolio. That suggests more room to go on the upside.