Sucker's Rally? Decide for Yourself

May.20.09 | About: Direxion Daily (EDC)

In March, when equities started to rally substantially off their unprecedented lows, there were many prominent doomsayers espousing the view that the longs were a bunch of ill-informed schleps in it for a "Sucker's Rally". The most vocal of the esteemed economists is Nouriel Roubini, who routinely tosses around the "Sucker's Rally" moniker and is known as Dr. Doom for having been right on the demise of markets early on.

Since he penned his March "Sucker's Rally" post (also opining on the fabled "dead cat bounce" which could have only been invented on Wall Street) and said Markets Could go MUCH Lower here both in the early part of March, the S&P500 has rallied 34% and well, if you were aggressive enough to go hard core developing markets with the 3X Return ETF EDC you're sitting on a 213% return. At the base assumption though,

click to enlarge

For 34% in 2 months, Call Me a Sucker!


While Dr. Doom is much more learned in the arts of finance than this simple blogger and student of markets, I can't help but remind readers that for every esteemed Nobel laureate/subject matter expert with one opinion, there will be another equally or more qualified voice with the exact opposite opinion (recall on the other end of the spectrum, Warren Buffett buying big time into the actual last sucker's rally? He was wrong as well).

The point is that you shouldn't be swayed by sensational sound bites and headlines from lionized economists, but rather, stick to your long term investment objective. If you're a twenty-something with a 401K account and you were trying to time your account in and out of the market, you may have very well missed the best 2 month move in equities you'll see in a lifetime. History has demonstrated that the majority of all upside in portfolio performance over a given time period is attributed to just a small fraction of very up trading days - and you may have missed them. For someone with a long time horizon that didn't need that cash for another 35 years, the best policy is probably to set it and forget it in the lowest fee passive index-type funds you can find in your plan.

Somebody was selling at the trough in early March. And I was buying.