Posts in category Stock Market →

If we look at the data for a broad stock market index, such as the Dow Jones Industrial Average or S&P 500 Index, three things jump out of the page. The first one is good news – there is a strong upward trend in market movement over the entire recorded history. This means that holding onto a diversified portfolio should fetch significant gain over long term – a popular retirement strategy for many who still have several years left before hanging up their boots.
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Now that the stock market has gotten into another volatile phase – swinging up and down in sync with jittery investor sentiment – the dooms-day forecasters and soothsayers alike have started coming out of the woodwork. There are as many advisers warning us “sell-off time is NOW”, as others saying “the bull market is still on, even though bull run may be over”.

This is also the time when a few market timers catch their lucky break. If stock prices fluctuate without any apparent regularity, by pure chance anyone can succeed once in a while in offloading just before a crash. But market almost always recovers as rapidly as it falls. Kiplinger recently noted that a timer has to be lucky not once, but twice – to get out at a high, and also to get in at the next low. Even that kind of luck is occasionally possible, but consistent market timing would be a rare feat indeed!

Last week ended with the second major stock market slump of this year that has barely gone through its first half. After a turbo-charged run over the last 5 months (since the first slump of ’07), during which Dow Jones Index rose 2000 points to cross 14000 for the first time on July 19, it dropped 700 points in the space of only 7 days since then (see picture). All the other major US market indexes also moved in a similar way, as expected (here is S&P500 Index). Someone in Wall Street made a comment that the bull run has finally ended, even though the bull market is still on. Go figure!

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