Many would like to know if the stock market has bottomed. Warren Buffett thinks this is a good time to buy stocks. One of my golfing partners dumped a bunch of cash into the market this week. The chart above indicates a market that took an emotional plunge and may be having second thoughts.
The stock market tends to play on emotions... elation or despair. Bubbles of elation become bursts of despair. If you want to time the market recovery... presuming that there will be a recovery... it may not be far off. The stock market started declining in earnest about around the middle of May. Usually, these sell-offs last about 9-15 months if I recall correctly. They always precede the government's proclamation of economic sliding... and the market always returns before the government is willing to say things are getting better.
So, if we use prior declines and recoveries as an indicator of where we are presently, I'd have to say we are jumping the gun... being too optimistic... that the market has bottomed or conversely that the market is ready to start rising steadily. There are too many levels of uncertainty right now for such optimism. What is reasonable to believe is that the market has largely discounted most bad news and will be in a state of agitation for awhile until matters financial are resolved.
My golfing buddy may have been a little too quick in his decision to enter the market, but his downside risk is much less now than 6 months ago... and his chances to catch the full recovery are... of course... 100% better than if he remained in CDs.
It's a gamble. Do you feel lucky today?
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