3:26 pm - Market Outlook by Bill Wermine

Dear Traders

Carving out a bottom

In late 1974 when the Dow Jones was below 600 and the air was thick with doom, Warren Buffet in an interview with Forbes magazine said “ I feel like an oversexed man in a harem. This is the time to start investing.” Within months the greatest rally in history began with the Dow running almost 450 points in a bit over a year.

This was a percentage return of over 75 % Buffet also said in the interview “ You pay a very high price in the stock market for a cheery consensus.” Some of my clients said there are too many question marks about the near future, wouldn’t it be better to wait until things clear up a bit ?

You know the prose: “Maintain buying reserves until current uncertainties are resolved,” Before reaching for that crutch, face up to two unpleasant facts:

The future is never clear, you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long term values. Justin Mamis, a former partner specialist in the NYSE wrote a book in 1982 , How to Buy, an Insider’s Guide to Making Money in the Stockmarket. The best opportunity he said is after a selling climax. A true climax he said must be preceeded by a prolonged and steady decline, accompanied by deep rooted gloom and a sense of doom.

Finally, investors who have been tormented by the down trend but have held on decide to disgorge their holdings because they have become convinced that prices can only become worse. Thus in addition to such a prior extensive decline, stocks have to embark abruptly in a form of free fall. Often it is sparked by a specific financial crises, such as a major bankruptcy, and then the dumping of stocks seems to pick up momentum. A specialist in the NYSE is a market maker and is obligated to buy in a market collapse to maintain an orderly market. Their average earnings each year is in seven figures and they profit by exploiting the human emotion of fear.

These fellows become rich by being smart like Warren Buffet. We trade in the now and take advantage of what is offered. In my opinion we are in a stage 1 accumulation phase. We need to deal in shares moving into stage 2 and confirmed by volume. Risk is relatively low at this point. Use your Advanced TAVA Metastock filter to find such shares.

One of graduates, JL Tan shared this powerful clip with me. Listen to the uplifting inspirational words and music. It applies to the current market and life itself.

Have a good week

Bill