New Column up at Real Money (01/20/05)



My latest column, "Watching for the Wonderful Washout is up at RM. It is loosely based upon Reasons to be Cheerful from earlier this week.

Here’s an excerpt:

"The bottom line is that the 2004 rally stole some gains from 2005. We got way ahead of ourselves last month, and the past few weeks have been a process of working off that excess bullishness. Today could quite possibly be the denouement of that process.

These factors — plus too much salivation over the impact of Social Security money (for the fees but more importantly for the rich inflow of funds) and its positive impact on the market — should be heartening to the bulls.

The next leg up can begin once this consolidation runs its course. I’m looking for 1166 on the S&P, 10,370 on the Dow and a possible drop to 1975 on the Nasdaq. I am advising clients to begin scaling into long positions as we approach those levels. Scaling in avoids "picking a point," which is somewhat random. Deploying all your capital at once is a win-lose proposition. Scaling allows you to be wrong or early, just not fatally so. So we scale into the market in stages. By doing this, I try to capture much of the upside, but with as little risk as possible."

Note that this is a shorter term (3 – 6 months) forecast; For a longer term (and rather bearish) perspective, see our 2005 Market Forecast


UPDATE:  JANUARY 21, 2005  6:31 AM
Real Money has made the full article available at Yahoo!

I like when they do that . . . Time sensitive Information shoujld be freed up on a delayed basis.


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What's been said:

Discussions found on the web:
  1. brian commented on Jan 20

    Is not averaging down a losing proposition?

  2. Barry Ritholtz commented on Jan 20

    Big difference between scaling in — and averaging down

    People long Cisco at 60 averaged down at 40 – 30 – 20
    think what that was on a percentage basis

    Then compare it with Buying the SPX at 11170 1160 1150

    enormo difference in both strategy and execution

  3. Jake commented on Jan 21

    That’s funny. I’ve heard 100 times that the fall rally stole gains from the beginning of 2005. I’m wondering if this consensus view is incorrect. Could it just be that 2005 will see a slowdown in the economy? Could China be heading for a harder landing than expected? Commodities, treasuries (yield curve), strong dollar all point to slowing growth


  4. oilshocked commented on Jan 21

    The consensus view tends to be correct about as often as not – unless you’re a contrarian. The one positive thing about this pullback is that market breadth is holding up rather well with no divergence between price and the advance-decline numbers that would signal a market about to fold over. New highs to new lows are still reasonable. Technically, we’re in pretty good shape. So far…

    The big negative moving forward is that short term rates are rising. A flattening yield curve will make things interesting to say the least. If long term rates do respond and move higher, the housing bubble will be pricked. Record consumer debt (to GDP) and an abysmal savings rate could force the consumer to throw in the towel sooner rather than later.

    I’m not sure I’d be buying stocks right now. Should be an interesting year…

  5. California commented on Jan 22

    What are the choices for commodity funds? This sector doesn’t seem to have many options for the small-scale individual investor.

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