Wednesday, March 28, 2007

Market moves on Bernanke

Today the Fed Chairman gave a speech that was completely empty of surprises to anyone who reads this site. Apparently investors were surprised though, as the notion that we have inflation and a slowing economy seemed to shock them. Of course this is exactly the situation noted here March 18th.

The market reacted with a rush into negative territory continuing this weeks trend to actually accept bad news as signs of slowing, rather than medicine to keep away inflation.

This exact market behavior has happened before, and recently!

Looking back to Feb 26th I wrote:
"Recently the market has been gaining on news of slowing growth (due to contained inflation) and going nowhere when growth is strong. Today actually saw profit taking and people discussing the possibility of recession."

That day I urged people to switch to cash:
"I'm certainly keeping a chunk of change on the sidelines, and I recommend you do too. Nothing hurts like holding cash while the market goes up... except holding all stocks when it goes down!"

Within a week the market had dropped 4%.

This behavior has recently preceded negative turns in the market. Hold fast on the sidelines, that's what I'm doing.

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