The Struggle between Credit worries and the strength of the Global Economy

Market participants have been pummeled with sub-prime, prime, and consumer credit worries. Perma-bears have gripped onto these worries caused by the real estate market rise of this decade. Deriving a thesis from potential catastrophe is a continuous theme from the bear side. Many individuals buy into the doom and gloom with these bears and pile onto the short side. The potential of these scenarios can be minimal or in today’s case quite plausible. This lopsided situation only creates small market corrections rather than big BEAR markets.

Whether or not we see a credit squeeze on the consumer will not be seen for quite sometime. What is more powerful than an individual’s opinion of the market is the market movement itself. Mr. Market is all powerful and tends to humble even the greats, bulls and bears a like. I do believe we may see a pinch by the real estate market on the consumer but at this time there are far too many bears on the scene for us to see a correction greater than 5-10%.

Corrections, much like the one from 2/27 – 3/21 do a few things for the market in general. Although short in duration this previous minor correction it still lead the Dow Jones Industrial Average to new all-time highs. I expect this market to do the same into this coming year but, as my thought on this market I’ll let the price and volume action determine my actions. What drove this market to all time highs? Its the “GLOBAL” economy stupid.

International growth in the Pacific Rim, India and Eastern Europe have helped multi-national companies thrive in this new world. What this has created is an enormous amount of wealth. This wealth will need to find its home some place as these countries will begin to diversify their asset base. Net foreign purchases of US securities has been tremendous, keeping this market afloat.

As we move forward I will not be purchasing anything and keeping cash on hand. This correction could lead to the first 10% correction on the Dow in over 4 years. On the other hand, we could see new all-time highs on the Dow. Buying of new stocks will begin once we see a confirmed follow-through on a major index. We’ll need to see increased volume over the previous day with the price advancing more than 1.7%.

At this point, those who have read me will have cut back on their laggard stocks. It is always wise to take some profits off the table in stocks like AMZN, AAPL, and RIMM. Start looking for stocks like ALGT and AVAV continuing to move sideways throughout this period in the market. Keep losses small and keep looking for great growth stories.

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