Market Analysis

There are three ways markets “correct” themselves.  The first of these is by magnitude. In this type, prices dive from the start and retrace from one half to two thirds of the previous rally.  Fear is the primary emotion throughout this pattern, and it frequently occurs after a major bear market when investors have been traumatized and fear that the bear has returned.  The second is by time.  In this type there is an initial decline and then prices rally, often to a new high, but with fewer stocks participating. The end move is a decline that ends just below the previous low and that ends the correction.  This occurs later in the overall bull market structure where there is more confidence in the long-term bull market.  The third type is by confusion.  This type only occurs in the last stages of a bull market where the forces of greed and fear battle back and forth and prices fluctuate wildly. Over time these fluctuations become smaller and smaller, and the market becomes quieter until there is one last explosion upward and the overall trend changes from rally to decline.  We believe we are in the final phase of the second type of correction, and a resumption of the long-term bull market should resume shortly.

In times like these we often get the question, “How can the market continue to rally with current events as they are?” Our answer is that the market is a discounting mechanism and it trades on conditions it anticipates will be occurring 12-18 months in the future.  Also, investors usually focus on the headlines, not the implications of those headlines.  For instance, the market is mostly focused on interest rates so the news of the day might be bad, but it also may cause the fed to lower interest rates which traditionally is bullish for stocks.  Trying to predict future stock market movement by “watching the tape” (monitoring the movement of stocks on a daily basis) or coming to conclusions based on the latest news is maddening and is not of much use.  Relying on long-term trends and market internal readings have been the most successful way to guide investment decisions.

Again, our research shows that the correction should be about over, but we are not flawless in our forecasts so we will monitor our indicators and if something begins to sour we will make adjustments as needed.

Gary and Dianne

This report is provided as a general market overview and should not be considered investment or tax advice or predictive of any future market performance.

Any security mentioned in this report may not be suitable for all investors. No investment mentioned in this newsletter constitutes a recommendation to buy, sell or hold a particular investment. Such recommendations can only be made on an individual basis after an assessment of an individual investor’s risk tolerance and personal circumstances. Past performance of any investment mentioned is not a guarantee of future performance. Statements regarding the investment concerns and merits of any company and fair market value computations are strictly the opinion of Marin Group. Employees of Marin Group and Marin Group clients may have positions and effect transactions in the securities of the issuers mentioned herein.