What Hit Me?

I know so many of you out there are still licking your wounds after the past year and a half’s worth of beat downs in the worst recession this country has seen in decades. Some of you have to be wondering “Why didn’t I see this coming?” I am not sure if I want to get into the whole world of technicals vs. fundamentals quite yet, but I do have to say that the technicals sure lured you right into a mess.

I do not discount neither fundamentals nor technicals when evaluating the market, but that is all secondary to just good ol’ common sense. The best indicator of the state of the economy is my check book. I am not part of the super rich, so fluctuations in the economy, inflation, fuel prices, etc. are reflected at the speed of sound directly into my check book. Let’s roll back, not 12 months when the stock market was spiraling down, but 18 months back. Everything seemed to be rolling along just fine, prices were good, sales were good, but fuel prices were just steaming along even faster. The day I filled up my truck for $117 for one tank of gas, I told myself, “I don’t know how long I can keep doing this?” Imagine being how much business’s were having to spend to keep their inventories in their stores. Then I started taking a look at my health insurance premiums, my electric bill, and my grocery bill. They were all going up significantly faster than my salary. RED FLAG!!!!! But the market was doing well, S&P was at record highs, but the volatility was through the roof. Daily 2 and 3% swings in the market are not normal, or even rational behavior. When the market had 2 or 3 huge gain days, and the S&P topped out around 1500, I said, “I’M OUT!”

Volatility is a great time to make money, both in bull and bear markets. I love volatility, but you need to pay the most attention to irrational behavior. If the market is going up, but you are going broke, well, you are most likely not the only one. Get ready for something big. When the market is being irrational, it is time to do a 180. Use you technicals to determine the volatility of the market, but use your senses when determining the true direction a market should be going. If EVERYBODY is selling, start watching for a good time to buy, and vise versa.