The Great Missed Opportunity of 2009
Clif Droke, August 3rd, 2009
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When the books have been written on 2009, the prevailing story will undoubtedly be one of lost opportunity. Countless numbers of investors caught up in the tangled web of pessimistic headlines failed to pull the trigger on what is turning out to be one of the best market recovery years of our lifetime.
Where else but in the perverse world of the financial marketplace can we witness such a sad spectacle? Most people in conducting their everyday business exercise common sense and prescience, acting according to their financial self interest and looking ahead at the potential pitfalls and benefits of the transaction before making it. But when it comes to the financial market, rationality goes out the door, which in turn paves the way for countless mistakes and missed opportunities.
With the S&P 500 Index (SPX) having already rallied almost 50 percent from the March low, it's sad indeed to consider that most investors have missed most, if not all, this great recovery rally. The foundation for this missed opportunity was laid last year during the credit storm. Investors were understandably jittery entering 2009 when the market had just experienced one of the worst declines since the Great Depression. The final decline into March of this year increased their fears even more. But something happened at the March bottom that should have shown them that the worst was over. To begin, there were all kinds of divergences showing up in the various market internal indicators. The number of stocks making new 52-week lows wasn't nearly as great as it was at the previous major bottom in November 2008. This indicator alone was a screaming signal to the alert investor that a bearish investment posture wasn't warranted.
Secondly, the important and oft-overlooked role of the NASDAQ 100 Index in not confirming the lower low in the S&P 500 broad market index. While the SPX did make a lower low in March, the NDX did not. This again was another screaming positive divergence that was simply too big to ignore. Yet all the while this was happening, headlines were swirling with doom and gloom. The financial press was engaged in making dire predictions of calamity in the most alarmist tone it could conjure. Not surprisingly, most investors ignored the clearly positive signs in the market itself and instead chose to listen to the fear mongers in the media. In doing so they missed out on the first leg up of the recovery rally.
