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Will the Relief Rally Continue? We Advise Caution!

Three years ago last week, Lehman Brothers collapsed. And the occasion was marked by the third largest weekly rally for the market since 2009. But how long will it last?

Last week’s upside was fueled by optimism on news that the European Central Bank will coordinate with other central banks to provide dollar liquidity to European banks. That followed Germany and France confirming their support for Greece.

All that really happened last week was that the can of the European debt crisis was kicked further down the road. And there is plenty of ugly reality to put an end to any relief in the market.

Besides Europe, there is our debt crisis. And a lack of job growth. And plummeting consumer and small business confidence. And the flagging industrial sector.

There is every reason to expect more of a leg down for the market. And a rally like we saw last week is something to sell into…not buy into. Granted, valuations are cheap right now. But the market signaled a sell last month, so until we see a reversal of the long-term trend, I’m not buying into any upward action…especially a rally founded on political moves.

The past several weeks are the perfect example of why a buy and hold approach does not work. You need an active investment strategy. You need to know exactly when and why you will buy. And exactly when and why you will sell.

Last week’s rally was based on nothing but a bunch of noise rather than any fundamentals. A clearly defined investment strategy can block that noise out, because you want to buy on the reversal of market trends, not on the volume of market noise.


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