INVESTING: You weathered market storm; don’t make it worse now

When an unexpected disaster strikes, people look for answers. They want to know how much of what they had before is left. It takes a while for the shock to wear off, but as heads slowly clear up, a lot of reassessment takes place.

The global meltdown in May in securities markets apparently hit most investors, retail and professional alike, like a misguided sledgehammer to the back of the head. Readers of this column were kept wellinformed of the approaching danger, with ample time to sidestep the wipeout. But from what I’ve been reading the last few weeks, a lot of people got hurt in May.

With the assessment phase in full gear now, I am hearing a lot of people throwing around advice that may cause even more pain in the coming months. All during the decline in May, one expert after another told investors that the latest fall was a buying opportunity, until someone finally got it right and the market rallied a little. Of course, most of those experts didn’t realize how far the market could fall, and if you listened to them you are still under water.

One of my favorite pastimes during bear markets is to listen to the loud pleas of analysts asking retail investors to buy whatever stocks the brokerages need to support.

On June 14, two major broker firms reiterated buy recommendations on Apple Computer, putting a $90 price target on the stock (it’s now at $57.50). These are the types of analysts who have been telling investors to keep buying Apple all the way down from $85 a share in January, and it looks as though they are going to keep asking people to buy it until it reaches $40 later this year. Then, they’ll put a sell on it!

After the extensive damage in May (the Japanese market, representing the second-largest economy in the world, fell 19 percent) it is reasonable to expect some kind of snap-back rally. The rally could last a few weeks and lift the S&P 500 5 percent from its recent lows.

I will be watching the rebound closely, because all sell-offs, corrections and bear markets eventually end, but I would be surprised if the May massacre is the end of the downturn. Most of the world’s major market indexes are trading below their 200-day moving averages, a bearish sign. This is the first time since early 2003 that this has occurred.

But again, faithful readers of this space were amply warned, and I am sure took adequate defensive action. Now that we are in our bunkers, how do we know when it is safe to come out?

We are looking for a couple of explosive upside days, spread over a short period-probably two weeks at the most. If this current rally is the start of a sustainable move higher, the market will show us soon, and I will be right along for the ride.

Because of the horrendous potential danger bear markets can wreak on a portfolio, however, it rarely pays to anticipate the move. With cash paying almost 5 percent now, patience will be rewarded.