IRA Investing: A Bit More Optimistic

Call me a flip-flopper (a term much in the news lately), but last week's horrible market action actually made me feel a bit better about the market outlook going forward. As you may recall, I was on the verge of moving my long-term market outlook to neutral from bullish for the first time since this bull market began. That still may be the outcome, but my indicators didn't fall into neutral territory last week. This signals that the current weakness may just be an extension of a simple correction that began way back last summer.

Just looking at the situation anecdotally, the talking heads on the business channels have moved en masse to the belief that a recession is almost a given at this point. While it would probably be the most widely forecast recession in history, the more important point is that the market has probably already discounted most of the recession probability.

The other factor to consider is that the government is not going to sit idly by and watch the economy go into a tailspin during an election year. There could be some positive surprises coming from that dynamic.

And in the meantime, most industries and companies are posting pretty good results.

I could sense an increase in fear last week, a feeling borne out by a higher-than-expected level of shorting by odd-lot investors as the week wore on. In the end, this indicator is still close to going neutra,l but it managed to stay in bullish territory last week.

The average stock performed worse than the major stock market averages last week, with the Value Line Geometric Average close to hitting a new low for this correction. This indicator is still rated as neutral.

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At the time of publication, Moore was long Axsys Technologies, Cal-Maine Foods, CF Industries, CommScope, Enersys, Exactech, Frontier Oil, CGI Group, ICF International, Kinetic Concepts, Layne Christensen, Measurement Specialties, Nova Chemicals, Open Text, PAREXEL Int'l, Elizaberth Arden, Rofin Sinar Technologies, L. S. Starrett, Stone Energy, Sybase, URS Corp. and Western Digital, although positions may change at any time.

Richard Moore, CFA, has 40 years of experience in various facets of the investment business. He has been employed by banks, mutual funds and investment advisory organizations during his career and has also owned retail and service businesses. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Moore appreciates your feedback; click here to send him an email.