A Six Percent Loss In Two Weeks!
Did you know that 80% of the price movement in a stock or a
mutual fund is determined by the overall market conditions and
by the company's sector? This is the reason we use the top-down
approach in managing your money. We look at the market
conditions and at how the sector is performing before selecting
individual names. The average investor, however, spends most of
their resources analyzing company risk instead of market and
sector risk. Market and Sector Review October 24, 2005 The
market is down 6% in the last two-plus weeks. Six percent is a
fairly usual market pullback, in the big picture. However, it's
a little unsettling seeing that kind of move in just ten or
eleven trading days (and one of those days the market was UP 120
points).
So, are we done with this pullback? Or is there more to come?
First, let's address if we are done with the pull back. Let's
look at the possible reasons we've had a drop lately:
* This past week was option expiration. * The Fed's apparent
decision to keep raising interest rates. * Poor earnings
announcements and lower forecasts of future earnings. * News
that inflation is significantly higher than the Fed expected.
This last item was news apparently only to the Federal Reserve.
Anyone who drives a car can tell us about inflation.
There have been some in the market hopeful that the Fed would
shortly announce an end to rate hikes. But whether right or
wrong, the rate hikes don't appear to be ending soon.
OK. So we have not really answered if we are done with the pull
back. So...is there more to come?
My opinion is yes, the odds are significantly higher that more
downside is still to come.
Having said that, I feel there is a good chance we will see a
bounce from these levels. It may just be a small bounce, perhaps
a last chance opportunity to clear some non-performers out. But
the trend, overall, is still pointing lower.
There seems no resolution to the problems facing the market and
the economy at the present time. More importantly, the technical
tools I watch tell me that supply is firmly in control of the
football and currently has shown no sign of letting go, either.
That does NOT mean that the market will go straight down, or
crash. It doesn't even mean the market will go down at all. It
means that the RISK of losing money is significantly higher
today than in the past. And since my job is to protect your
principal in times when the market is on defense, we need to
exercise extreme caution right now, as we have done for the past
four weeks. It would be very unusual for me to get you out of
the market at the top (or in at the extreme bottom, either). The
main objective, on defense, is to protect principal, so we have
money to buy good assets when they go on sale.
Staying focused on principal preservation and your defensive
game plan should be the primary objective at this stage of the
game. To see where you stand, please call us at 877-223-7300 to
set up a time to review. And feel free to check the Mullooly
Asset Management hotline as well, where I outline the early
indications I use to determine when the market may be starting
to turn.
Mullooly Asset Management, LLC does not guarantee the accuracy
or completeness of this report, nor does Mullooly Asset
Management, LLC assume any liability for any loss that may
result from reliance by any person upon any such information or
opinions. Such information and opinions are subject to change
without notice and are for general information only. Companies
mentioned in this report can be, and often are, owned by clients
and employees of Mullooly Asset Management, LLC,. All commentary
is based on observing the aggregate of investors decisions of
historical systematic accumulation or distribution. This does
not guarantee future continuation of such trends. Fluctuations
in stock prices are not an immediate reflection of the quality
of a company. Any expressed or implied recommendation contained
within, are made without regard of investors objectives. Consult
your advisor. Information contained herein has been obtained
from sources believed to be reliable, however the accuracy can
not be guaranteed.