Signs Point to a January Rally

In my December 24 column, I said major institutions may want to look as conservative as possible going into year-end because of the carnage throughout 2008, which means they will park their money in Treasuries and sell weak holdings. If that was happening, it would suspend a rally into the first couple of weeks in January.

That exact scenario may possibly be developing as we continue to see strength in the indices among all the bad news. The Chicago Board Options Exchange Volatility Index (CBOE: VIX), which also measures fear, is finally dropping down to much better levels to inspire some confidence in investors.

Another positive sign is the weakness in Treasuries, which have been correcting sharply over the past couple of days and means institutions may be repositioning money into equities and out of safe havens.

The only problem is that we are not seeing much volume on the upside. Obviously that may be from the slow holiday trading, but it needs to change in the coming weeks to confirm the recent strength.

Before we look at what needs to take place in the market for an intermediate rally to develop, I want to follow up last week's column on listening to the market with another important lesson that will benefit readers tremendously in the new year.

Most individuals want to jump right into trading and investing without paying attention to the major reason most investors fail: They do not want to be bothered with the mundane tasks of setting goals, managing a portfolio and controlling risk. They would much rather get to the fun stuff like buying and selling. What they miss is that successful investing is hidden in the details of money and risk management.

Investors and traders who used proper money and risk management in 2008 had nowhere near the losses that average investors had. I vigorously stressed protective sell stops and a large cash position throughout last year, and readers who followed my columns should have sat through the entire decline safely in cash.

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At time of publication, Manning had no positions in the stocks mentioned, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.