When you read headlines like ‘Small investors drive Dow’, you know the ‘dumb money’ is in, so it’s time to get out- at least for a little while. There are some bad things happening underneath this burst of market euphoria.
The market is moving in direct inverse correlation with the depreciating dollar. The price of gasoline and groceries has soared seemingly overnight, while the average paycheck is now two percent lighter. Meanwhile, the latest jobs report released on Friday, indicates that labor participation remains at multi-decade lows; the 2% annual average wage gain of hourly workers has been nullified by the payroll tax increase, while health care and education costs continue to escalate. Did I neglect to mention higher state and local sales tax and income tax taking their bite as well?
Short-term seasonality is also now working against the market. February and March are seldom kind to investors, with the exception of years when the market is bouncing off of a bottom. This market looks ripe for a blow-off rally which reverses and ends up closing at its low by the end the trading day. They don’t call it ‘turnaround Tuesday’ for nothing.
Best advice? If you didn’t buy the Fed’s trillion-dollar announcement last year, don’t be the dumb sucker who buys from those who did. The old adage is ‘buy low- sell high’. Lately that has come to mean, buy in June or September- sell at the end of January or April.