Markets Hit New Highs –Q4, 2007 Starts

As the quarter started, the stock markets hit new highs and the Dow Jones Average closed above 14,000 point.

Time to Celebrate?

Actually, now is the time to be ultra-cautious for this reason:  When euphoria hits the market is the time to really look at what’s happening. 

I tend to look into companies when everyone is worried.  That is when good returns are made.  If you look at the past 3 month, during the mortgage paper crises and the infusion of capital from many governments, the market cooled off.  Then it rallied when the Fed cut rates.  Suddenly, the fallout from the mortgage paper mess is history.

HOWEVER, while many may forget the mess (or at least the press does), the autual reporting of that issue in corporate balance sheets is yet to come.  The “mess” as I call it will show up on a lot of balance sheets when companies start to report their results later this month. 

All this can mean a sudden correction, when everyone is joyous about the “new highs”… How can we protect against this mess?  Just to watch each sector and to do what I do –Keep a good eye on the ratio between winners and losers on Wall Street.

Even while the markets are going up, because the market is a reflection of large multinationals, the overall WIN/LOSS Ratio can “go south” very quickly.  That is the only way to keep from “messes” catching up with independent investors.  Keeping a good eye on the win/loss ratio can get us out of the market quickly –before the “mess” catches up to everyone else and it’s too late to “get out”.

Rich Sage.