Not Betting on a Selloff
By Rev Shark
RealMoney.com Contributor
5/1/2006 8:59 AM EDT
"No man is happy without a delusion of some kind. Delusions are as necessary to our happiness as realities."
-- John Christian Bovee
It's easy to delude yourself in the current market environment. Anyone who is positive certainly must be deluding themselves to some degree. After all, commodity and oil prices continue to rise, the dollar is weak, bonds are struggling and plenty of stocks have stumbled following their earnings reports. How can we possible feel good about this market unless we are deceiving ourselves about the degree of the problems that exist?
But the reality is that the S&P 500 and the DJIA are within spitting distance of multiyear highs and the Nasdaq is less than 2% from its highest point since 2001. Aren't the bears -- who are so focused on the negatives -- also deceiving themselves about this market when so many stocks continue to act well? Despite the pockets of weakness, there are also some substantial pockets of strength. In fact, that is what helps make the market particularly confusing. Although we can find plenty of poor action, there's also much that is positive.
The truth about this market is neither as good as the bulls would have us believe nor as bad as the bears keep telling us. There certainly is much focus on macroeconomic negatives recently and many are absolutely, positively convinced that the hammer will fall at any moment. On the other hand, there are positives that keep that from happening: the strength in banks, the uncertain state of sentiment and the fact that the market continues to hold up well in the face of scorn and ridicule.
What investors need to do is make sure they are cognizant of the bifurcated state of the market. Don't be too quick to embrace the pessimism when there are so many things that continue to act well, but also don't be too fast to throw caution to the wind as big-cap technology, biotechnology and other sectors struggle.