Thursday, April 28, 2011

Stock Market Building Towards THE Peak

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

As I write this Federal Reserve Chairman Ben Bernanke is just beginning his first ever, "official" press conference. As savvy as he is, (remember his first 60 Minutes interview right at the bear market low?) I doubt that we will hear anything unexpected in his remarks or his answers to media questions.

The latest bull run in stocks that began on March 16 remains alive and well. A few weeks ago, I offered that since we saw some of the key indices making new highs, that boded well for the others to play catch up. Since then, the Dow Industrials, Dow Transports and S&P 500 have scored fresh highs with the Nasdaq 100 a few cents away.

On the flip side, volume remains woefully pathetic and eventually that's going to matter. Sector leadership is very good, BUT the key financial sector is behaving very poorly. With the indices at new highs and this group in a downtrend, something has to give sooner than later.

So far, nothing has changed in my thinking that a possible significant peak is building sometime this quarter. Besides what I've already mentioned, I am focusing on the junk bond and small cap areas where the first sign of evaporating liquidity should be seen.

The initial decline from any major top is going to look exactly like every other small pullback, only in this case, the next rally will fail short of new highs and a sharp, relentless decline will ensue. As always, we will take it one step at a time and do our best to protect the gains we've been fortunate enough to make.

I hope that none of you are sitting back, complacently believing that we survived 2008 and all is good in the world. That we are on the cusp of another decade long bull market to untold riches. In case you haven't realized it, the stock market (and many, many, many mutual funds) is at the same level it was 12 years ago! That's essentially 0% return on your money BEFORE inflation! So factoring in that pesky inflation thingy, you end up with a significant loss.

I urge you! I beg you!! You have a plan in place in case you get into a car accident. You have a plan in place in case your house burns down. Don't sit back and hope that everything works out with your money. Now is not the time to procrastinate. It's the time to put a plan together. Investors don't plan to fail; they fail to plan!

Feel free to email me with any questions or comments at

Until next time…

Paul Schatz

Heritage Capital LLC

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