Should I Buy Into This Stock Market Rally?

November 5, 2008

For the moment, the very-short-term answer is "no".
    At the moment I'm writing this, the S&P 500 index is falling out of bed, and the immediate answer is easy: not this minute. Even if it's time to buy, we'd want wait until the markets find a bottom.
Later:  Today certainly wasn't a time to buy. The market closed down about 5%, and was falling fast at the end of the trading day.

    Beyond that, I don't know what to do myself. The LIBOR (London Inter-Bank Offering Rate) has been falling steadily for the past couple of weeks, implying that banks are becoming more confidant about lending to each other. Also, we're no longer hearing every day or so about a new banking crisis. On the other hand, the business news is 'grismal'... grim and dismal, sounding worse by the day.

    The S&P 500 bottomed on October 10th at 840 and closed that day at 848. It closed today at 953. So it's up 105 points from its lowest close, and down about 600 points from last October's 1,562+ close. It would need to add another 125 points to reach 1,078, in order to reach an intermediate peak a third of the way back up to its 2007 high, or it would have to add add another190 points to close at 1,143, which would put it half way back up to its 2007 high. The point is that at this point,: the stock market hasn't gone very far up, and the volatility is mind-boggling.

    If you have any desire to trade this rally, then the I should think that the first rule of the road, given the extreme turbulence and potential for disaster that's visible in this marketplace, would be to invest no more than a fraction--a third, a fourth, or a fifth--of my portfolio in high-volatility products like UUPIX (the Proshares Ultra Emerging Markets Fund).