Yesterday marked the most bullish three-day period in quite some months, leading some analysts and investors to become more comfortable with the notion of a recovery from last week’s volatility. Tuesday morning trading; however, pushed lower again and while the remainder of the day will be telling, the weak start is indicative of a lack of certainly. There is suspicion that the recent recovery was the equivalent of a dead cat bouncing after being thrown from the roof rather than changing long-term attitudes among investors. At this point, the market has bounced back from its lows. Shares of most stocks are still trading beneath their 52-week lows, but the selection of strong stocks in the bargain bin has depleted with each day of in-the-black trading.
While it’s possible to sift through the Dow and Nasdaq listings and identify some still attractive stocks, the unknown direction of the market remains the defining mystery facing the market. With the broad potential for unbelievable margins behind us, many investors may be wondering if there’s value in investing as stability returns. The short answer may be that it’s not worth the risk. Below are three reasons why it may be wise to hold off.
1) The recent rally has not changed the fact that the U.S. may be re-entering a recession. Global economic growth slowing, a fact supported by France’s recent credit worries and Germany’s disappointing growth reports this morning continue to pose a major issue to stocks. Fear of European debt contagion compounds these worries. While these issues could recede into the back ground for a short time, they will continue to contribute to volatility.
2) Unemployment continues to be an enormous hurdle facing the U.S. economy and the current administration’s efforts to correct have hardly been effective. The recent budget slashing that has cut support for PhD and other advanced educational programming could have a negative long-term effect.
3) Investing in stocks that had been trending upwards may also be a mistake at this time. Buying a stake in gold, the swiss franc or other safe havens that were rising in advance of the major slides last week may not worth the entrance fee. Highly active traders could consider a position here, but they are still expensive as the volatility of the equity sell-off led many safe-haven owners to stay in for the long run. Equities may have risen sharply but gold and the swiss franc were still well-above historical averages in the aftermath.
Essentially, while looming opportunities remain the recovery has minimized the extent of attainable margins. At close yesterday the market looked to be nearing its levels of technical support at around 1260 and resistance is setting in. It may be wise to wait out the resistance and consider entering the market at a level that will offer more support.
