By MoneyMorning.com.au
“The Dow Jones Industrial Average soared 337.17 points, or 2.87 per cent, to 12,103.43, registering its biggest gain since November 30. The rally propelled the blue-chip Dow into positive territory for the month. It is up 4.5 per cent this year.” – Dow Jones Newswires
In other words, nearly two-thirds of the Dow’s gain this year came from this morning’s stock market action.
So forgive us if we don’t get too excited about an economic recovery.
We asked Slipstream Trader, Murray Dawes to give us his thoughts for the year ahead in the latest issue of Australian Small-Cap Investigator (due out today).
One highlight is this:
“Therefore the road forward for stocks will be gut-wrenching sell-offs followed by super spikes on the back of money printing. But each episode of money printing will have less effect on the market than the previous one.”
The key point is you’ll see more of these sell-offs and super spikes in the year ahead.
By the way, as we write, Murray is recording his latest free stock market update video. To watch it on his YouTube channel later today, click market update.
So, what caused this morning’s stock market excitement?
According to the same Dow Jones Newswires report:
“US stocks surged as domestic home building jumped to the highest level in nearly two years and another successful Spanish debt auction buoyed investor sentiment.”
Remember, this is a housing market that – according to investment bank, Goldman Sachs – has over two years of supply on the market. Put another way, at the moment supply exceeds demand by more than 24 times!
And we’re supposed to get excited that the U.S. is building more new homes.
This morning, Australian stocks are up over 2%. Everything is going up: banks, resources stocks… even the retailers everyone hated just two days ago. Billabong [ASX: BBG] is up 1.9% as we write… of course it has fallen 50% since last Friday.
And don’t forget the S&P/ASX 200 is still down 12.7% for the year… and 17% below the worst-case forecast by the big financial institutions at the start of the year.
The question is, after the Santa Rally made a false start at the end of November, is this the start of the real Santa Rally? Could be. But we’ll say this…
Just as the stock market quickly turned on a sixpence sending stocks crashing nearly 10% in just over two weeks, there’s nothing to say the same won’t happen again.
If you’re planning on taking a couple of weeks off over the Christmas and New Year holiday, we’d suggest cutting back on your exposure to the stock market. Sure, have a couple of irons in the fire just in case the market rally lasts.
But there’s just as high a chance the stock market will go down again before you know it.
As a fundamental investor (someone who looks at what the company does and how it does it) we’ve largely sat on the sidelines for the past six months. And we’re glad we have.
Soon will be a great opportunity to buy. We’re just not there yet.
Our tip is, enjoy the holidays and don’t pay too much attention to the stock market. Because odds are, when you come back from holidays in January, the market will be roughly where it is today… and you’ll have missed out on nothing.
Cheers.
Kris
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From the Archives…
A More Profitable Investment Than Cheap Gold?
2011-12-16 – Aaron Tyrrell
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2011-12-15 – Aaron Tyrrell
Is This the Gold Buying Dip You’ve Waited For?
2011-12-14 – Kris Sayce
Is Now a Good Time to Invest in Stocks?
2011-12-13 – Kris Sayce
Why You Shouldn’t Trust Your Gold to a Banker
2011-12-12 – Kris Sayce
For editorial enquiries and feedback, email moneymorning@moneymorning.com.au