There's a sucker born every minute, according to Circus legend P.T. Barnum. And he knew how to capitalize on it.
From Wikipedia: "There's a sucker born every minute" is a phrase closely associated with P. T. Barnum, an American showman of the mid-19th century, although there is no evidence that he actually said it. Early examples of its use are found among gamblers and confidence men.
Did you catch that? This phrase can be found among gamblers and confidence men. But what is the relevance for investors in the stock market? I think it's symptomatic of what's happening right now.
Every bear market has sharp rallies
Let me be clear: I am not calling for a bear market. But the longer this rally continues, the less confidence I will have in its sustainability. What I see is short covering, not a fundamental shift from bearishness to bullishness. If the scales tip in favor of the bulls, I will acknowledge it, but for now the bears are in charge.
Ralph Wanger, former head of the highly successful Acorn Fund, once told me, "The only thing faster than the speed of light is a rally in a bear market." I have great respect for Mr. Wanger, and I think what he was telling me was to beware of strong rallies after a market break, because they usually don't last.
The point here is that I think there is more downside to come, but I don't think we will sink into a new bear market. Why? Because there is no recession in the immediate future. The next recession is at least 6 months away, and market declines in the absence of a recession are limited in scope and duration.
A savvy investor will have a Plan B. in place for dealing with this downturn. This is a plan that is conceived during a bull market and lays out the steps to take as the market declines. It's not an all-in or all-out proposition. It's a gradual, measured response to market conditions as they unfold.
If you would like more information about how I structure a Plan B. contact me through my website.