Bottom fish or head for the hills

“October—this is one of the particularly dangerous months to speculate in stocks. Others are November, December, January, February, March, April, May, June, July, August and September.”

The foregoing quote is one of the lesser known memorable quips made by Samuel Langhorne Clemens (1835-1910), better known by the pen name Mark Twain, the American author and humorist, noted for his famous novels “The Adventures of Tom Sawyer” (1876) and its sequel—which is now proclaimed as America’s great novel—“Adventures of Huckleberry Finn” (1885).

Mark Twain is said to have made a great deal of money. It was obviously not through the stock market but through his writings and lectures.

Lacking financial acumen, he squandered his fortune—and that of his wife—on various ventures, notably due to his fascination for science and technology. And because of the above-quoted remarkable statement, some of which could have been possibly in the stock market.

He was forced to bankruptcy. A new friend helped him overcome his financial troubles. Unlike the tragic endings of other greats, he died successful and popular, and more importantly, a fulfilled man. According to various accounts about him, he earned this through hard work and high sense of integrity.

Less remembered, too, was his accurate prediction about his own passing away: In 1909, he was quoted as saying, “I came in Hailey’s Comet in 1835. It is coming again next year, and I expect to go out with it. It will be the greatest disappointment of my life if I don’t go out with Hailey’s Comet. The Almighty has said, no doubt: ‘Now here are these two unaccountable freaks; they came in together, they must go out together.’”

He was right. On April 21, 1910, he died of heart attack in Redding Connecticut—“one day after the comet’s closest approach to Earth.”

Market overview

The wariness in the statement of Mark Twain about the stock market captures exactly what is felt at the moment by many investors.

The market has been tough, making even longtime market riders like I do feel confused on its ups and downs through a trading range which at this time begs the question if we should now “bottom fish or head for the hills,” so to speak.

The market closed again higher for the second week last week after its precipitous fall of 404.21 points, or 9.42 percent, in the third week of September.

To recall, the market always fell in three out of four weeks in August. It registered its only weekly net gain for the month on the third week of only 18.17 points to close at 4,339.90, or equivalent to 0.42-percent net gain from the week before of 4,321.73

In September, the market fell in three out of five weeks: It managed to end higher for the week ending September 2, on a small gain of 44.41 points, or 1.02 percent. Thereafter, it drifted lower in the next two weeks, dropping 46.84 points and 55.90 points respectively, for a total of 102.74 points. As it happened, the market broke down to its lowest in about 52 weeks (or a year) at 3,885.96 for a total loss of 404.21 points at the end of trading for the week ending September 23. By then, the market laid dangerously into bear territory as it broke, more or less, the psychological market support index of 4,000.

The following week, September 26 to 30, the market bobbed up and down between the ranges of about 120 points up to a low of about 165 points down, where in the end, the market closed higher by 113.69 points on a weekly basis. The following week, which was last week, the market went on to climb to a net weekly advance of 9.61 points, or 0.24 percent. Like the week before, the market observably ended within the main psychological market support of 4,000—at 3,999.65 on September 30 and 4,009.26 on October 7.

To the more optimistic market rider, the market’s performance in the last two weeks was a good sign. However, the market’s net advance of 9.61 points last week was a negative. It was not material enough to be considered as a patent sign that the market is pushing on to bull market territory.

As observed, the market’s recovery and advance that started two weeks ago coincided with the end of the month and end of the third quarter. The market’s movement could just be the effect of window-dressing, a seasonal event traditionally observed during these times.

What’s more, considering our market’s link to the behavior of the US market, the significance of the latest advances of our market in the last two weeks were negated by the results of trading on Wall Street last Friday, which ended lower as it lost the momentum of its three-day rally for the week on further disappointments about the state of the US economy and fears on the European credit crises.

Bottom-line spin

I wrote the other week that the market—as well as the global equity market—is obviously teetering on the brink of falling. Nonetheless, as observed in our market, even if the results of trading were always down in three out of five trading sessions for the week or three out of four to five weeks in the last two months or so, the market still managed to recover and end higher on a weekly basis, albeit small. More importantly, it is hanging on to its main psychological support index of 4,000.

In addition, despite the gyration of stock prices on Wall Street that has been sending its main indices precariously to bear market territory, Wall Street has also managed to hang on to the Dow’s bull market psychological support level of 11,000.

To what I can see in this situation, the current trend of the market is about to end. If it is to drop further, the effects of the fall may not linger too long. The recovery, though, may not be spectacular as they were before. It could border on what many may describe as trendless, but not exactly trendless. But certainly, the market will not fall into the doldrums. In view of this, I would now “bottom fish” than “head for the hills.” (I will present an explanation of this position in the next article).

The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at [email protected] or directly at www.kapitaltek.com.