Issue of the week: Have stocks finally hit bottom?

Some money managers are prepared to say the market has reached the bottom, others are not. Andy Kessler from The Wall Street Journal might have the wisest advice: “I’d say stick wax in your ears and don’t listen t

Time and again since the financial crisis began 15 months ago, stock market watchers have announced that prices have finally bottomed out, said Tim Paradis in RealClearMarkets.com. And time and again, they’ve been wrong. Last week’s terrifying two-day plunge—which drove the Dow Jones industrial average down 872 points to 7,552—seemed to disprove the optimists yet again. But then, over the next two trading days, the market gained 891 points, the largest two-day point gain since 1987. After that, investors dared to think that “the worst of the financial industry’s problems might finally be over,” and that the market’s comeback had begun. “I think it’s a little bit of confidence coming back into the system right now,” said money manager Harry Clark.

We’ve heard that before, of course, said Mark Hulbert in Marketwatch.com. But I’m afraid there may still be dark days ahead. My pessimism is based on what I’m seeing in the many insider investment newsletters that I track. These publications tend to fall into one of two camps. One group recommends buying stocks and holding them, regardless of the market’s gyrations, on the theory that stocks always rise over the long term. The other group tries to “time the market”; they push investors to buy before a rally starts and sell before a decline gathers momentum. In general, “as a bear market approaches its final low, at least a few die-hard believers in long-term buy-and-hold throw in the towel” and convert to the market-timing approach. That hasn’t happened yet. Until I see some true buy-and-hold adherents abandoning the faith, I’m not prepared to call a bottom.

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