A Bi-Polar Market

The lucky few Americans who are finishing up a two-week vacation tomorrow may be surprised when they next check their brokerage account balances this weekend.  Assume for a moment they packed up the station wagon, loaded the kids, and headed to the lake on Friday, July 10^th.   Maybe our nuclear couple checked their brokerage and bank statements the night before to size up exactly how much to spend on little Jeanne and Johnny.

On July 10^th, the S&P 500 traded in a range from 873 to 883 with a close around 879.  Today’s high was over 979 – almost exactly 100 points higher in nine trading days.  Call it a silky smooth 11% pop in less than two weeks.  Kowabunga!

Now mind you, if our vacation loving couple were net short, they’re crying over their empty Diet Coke cans.  However, if they’ve been invested, even conservatively, they’ll see a big increase in their net worth.  As an added bonus – their vacation paid is in full, with plenty left over!  Cha-Ching!

Now, here’s the rub.  What should Mr. and Mrs. Nuclear Parent do now?  All they read about in the financial press before vacation was something about a reverse head and shoulder pattern, support cracking, the market shaping up for a big downside move.  Now, the Sunday morning business section will be lathered with bullish spin – better-than-expected earnings, housing recovery, and Fed Chief Ben Bernanke’s magically delicious exit plan.  Go figure!

It’s the sign of the times.  We are now moving from over-sold to over-bought conditions in hours, not weeks or months.  Discussions about “the VIX,” bull/bear surveys, unemployment reports, corporate earnings, changes in the price of gold or oil are all becoming common in our hyperactive investing society.  We have engineered a bi-polar investing world!

Have the capital markets evolved from an investment organism into a trading organism?  Do prices reflect fundamentals, or is perception all that matters now?  There are no easy answers.  We are in a bi-polar world.

I think it makes sense, especially in this dangerous market, to maintain a disciplined approach, with heavy cash balances and a skeptical eye toward what the masses on Wall Street are pitching.  We’ve come a long way in a very short time.  And now we’ll hear how the train is leaving the station and you better not get left behind.  I’d be careful not to get caught up in the hype.

We’ve all seen firsthand how this market can swing violently up, down, and then back up again.  Don’t be so sure it’s a one-way ride to Dow 10,000 now.  Good luck.