One acknowledged investment strategy for market timing is to stay with the major trend. A problem with this method lies in the execution. Can the individual investor "pull the trigger" at the right time?
An interesting example occurred on January 3, 2001. The Greenspan Fed surprised the market. Here is the report from the next day’s Wall Street Journal:
"The Federal Reserve’s announcement of a surprise interest-rate cut, at
just before 1:15 p.m. Eastern standard time Wednesday, touched off a record
14.17% rise in the Nasdaq Composite Index, some of the strongest gains of
the past year for other major stock indexes, and a shattering of U.S.
The WSJ had an intriguing quotation as well:
"This is the Fed putting an exclamation point on their commitment to try
to engineer a soft economic landing," said James Weiss, chief investment
officer for stocks at Boston mutual-fund group State Street Research. He
called it "dramatic," "striking" and "very significant."
Cisco Systems, a widely-followed tech leader gained 24%.
My experience with most investors, fund managers, and professional traders is that they would have trouble buying after such a move. You had to be there already.
The question for all of us right now is what confidence should we place in the recent market action? Since the tough-talking from the Bernanke Fed started, the market is anticipating a collapse in every stock linked to basic materials, heavy industry, and technology. There is a consensus that the Fed will destroy the economy somehow, although the worriers do not agree on exactly how. What if they are wrong?
On my schedule is a post showing how little the pundits know about the basic facts of government — the role of the Fed, how they operate, and their philosophy. I place little confidence in the punditry on this subject.