Vigilant Investments Advisors, LLC.

Is This the Bottom — Update #3

From March 6th to May 6th the market rallied over 30% leaving most investors behind.  As a continued update to the process of creating a market bottom, this post discusses the later stages of the process and what to expect as the process completes.

A market bottom is created when the largest number of investors are determined to leave the market and they attempt to leave the market all at the same time.  The rally that we have seen over the last two months is a rally that was sparked by the market participants discovering that the world really wasn’t coming to an end.  However, the rally is not a fair representation of the end of the economic problems that the world faces.

As is common in market folklore, the market tends to overshoot on the upside and on the downside.  What we have seen in the last nine weeks is a re-tracement from a market that clearly overshot on the downside—and now has perhaps overshot again on the upside.  The common question now is, “where do we go from here?”  

As market cycles complete, the markets settle down and volatility decreases.  The number of days when the market moves more than 2% in a day will decrease to a once a month, rather than the once a day move.  Analysis of the market will generally not be discussed in the local newspapers and will certainly not be the lead story on the local new stations.

This lack of attention given to the market will tend to give the markets some breathing room and time to heal from the craziness of the past two years.  Probably the best long-term and most calming series of events for the market would be a slow crawl sideways for an extended period of time.

Here’s hoping for a calmer stock market for the rest of 2009.