As an observer of market conditions it always bothers me when a publication like Barron’s starts predicting market directions. I’m referring to the cover article of the April 20th, 2013 edition of Barron’s. It has a picture of a bull on a pogo stick espousing the Dow Jones going to 16000. One of my favorite workshops on investing that we regularly hold goes into depth on how wrong these predications have been over the years. If you depend on journalists to plan your investment portfolio you will produce a flawed result.
This retracement of the market averages was expected and welcomed because a years’ worth of returns in the first quarter of the year cannot be supported with growth at 2%. Also, the retail investor is still not fully committed to equites and still sitting on the sidelines. One of my main gauges of the market is psychology as it pertains to the market. As Buffet has stated many times, “buy into fear sell into greed.” When the bulls start using pogo sticks greed is not far behind.
The good news is that the remainder of the gauges; valuation, monetary and market trend are very positive. Therefore, this pullback should be short lived and the market should continue its upward trend once levels on the indexes reach a more profitable entry point. This is why you will see a little more cash held in accounts than was at the beginning of the year.
Gold selling off is very positive for market returns, because if gold is bought due to fear then it is sold when that reason has run its course. Gas prices are down which is another positive as is the reporting of earnings during this cycle which are on the whole positive. Market timing is impossible but being patient and waiting for a better price is prudent.