Santoli: Don’t Overthink The Rally


EVERYONE SEEMS TO BE INSPECTING THE TEETH and gums of this galloping rally, searching for signs of rot and vulnerability.  Haven’t the riskiest stocks led?  Aren’t stocks pricing in fundamental improvement not yet evident?  Weren’t all those earnings beats from cost-cutting?  Doesn’t this move resemble epic bear-market fake-out rallies of the past?

Maybe.  At a certain indeterminate index level, this market will have to answer to these concerns.  But aside from practicing veterinary dentistry without a license, folks bringing this kind of scrutiny to every up tick in the Dow run the risk of over-thinking what the market is saying.

– Michael Santoli, “Gummy Bears” (subscription required), Barron’s, August 22

I don’t know what to make of this introduction to Michael Santoli’s latest Barron’s Streetwise column, which is getting a lot of discussion in the blogosphere.  Look, people who have been long this market have been right and made a lot of money.  The name of this game is making money and people who are long have made money.  In a certain sense, it is that simple.

But what now?  Don’t overthink it and stay long?  What about the legitimate fundamental, economic, technical and sentiment concerns?  I guess it comes down to whether you just want to let it ride and be a momentum investor or whether you want to do deeper research and try to invest in a more fundamentally sound way.  Because make no mistake: at this point, this move is about psychology and momentum and nothing else.  We know which has worked for the last six months.  The question is: Which will work for the next six?????

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