Such a Skittish Market

Those who won our independence believed liberty to be the secret of happiness and courage to be the secret of liberty.
-- Louis D. Brandeis

The market will likely offer few fireworks today as market players take a break for the Independence Day holiday following one of the wildest six-month periods ever for the stock market. After hitting lows in March not seen in more than 10 years, we had one of biggest gains ever over the next few months. The mood shifted from a feeling that the world is coming to an end to celebration that the worst is over and that steady improvement lies ahead.

We haven't made much additional progress over the last couple of months, but the stock market has been enjoying a steady diet of optimism even though many on Main Street don't believe that things are really getting that much better.

I continue to be surprised by how the attitude of people I talk to about the economy is much less upbeat than what the stock market seems to be reflecting. The business media is full of stories about "green shoots" and how things aren't quite as bad as they were. The market has embraced that feeling and has plugged away nicely for a number of months, but the folks I tend to encounter feel much more worried and less positive.

Part of the explanation is that the market is supposed to look forward and discount developments down the road. The way the market is acting, the recovery is right around the corner and should be relatively smooth.

The question is whether we can trust the market's judgment. The market was horribly wrong in April and May of 2008 and did a terrible job of predicting what lay ahead for both the economy and the stock market. If you took action as we began to falter after that time you were OK, but if you blindly stuck to the argument that the market was making positive predictions back in May 2008, you were in big trouble six months later.

The market is not a good predictor of where things are going to be months from now, but it does give us warning of how trends may be shifting. We need to stay highly responsive to that and adapt as things change. Good action last month may be negated very quickly by poor action this month. The idea isn't to embrace just the things we like, but to look at the big picture and to react as developments emerge.

The market has not giving us any major warnings yet, but it has been struggling a little more. We have had some upside over the past week or so with the end of the quarter, index rebalancing and the inflow of new money for the second half of the year, but we haven't been able to gain any strong traction. On the other hand, we are still holding support levels and the bears can't gain much ground either.

Today we have the jobs report and what will be very thin trading, so it's going to be tough to draw any major conclusions. Still, the reversal yesterday and the end of some artificial factors that have held us up should make us increase our caution levels. We'll see how we react to the jobs data, but right now the market is a bit nervous.

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James "Rev Shark" DePorre is the author of Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital made a Fortune Investing in the Stock Market. He is founder and CEO of Shark Asset Management, an investment management firm, and he also operates sharkinvesting.com, an interactive online community that serves and educates active investors. DePorre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here.