INVESTING: Profiting from the current market takes hard work

The stock market is having a great year. (You just checked the latest info, though, and you saw the Dow is down over 4 percent for the year. I must be nuts, right?) I’m not crazy. Remember that since August 2004 I have been pounding the table for the midcap stocks. While the Dow is down 4.5 percent so far in 2005, the midcaps are up 4.01 percent. Throw in a few higher-performing issues, and bam! It’s a great year.

The bull market that began in March 2003 is now in the mature stage. There are still strong sectors and industries. A number of issues in the better categories will still see much higher prices. But there is also a growing list of weakening stocks. Look at steels for example. We are now in what I call a two-way market, and there are massive opportunities in this environment.

Since the latest rally attempt got under way in late April, I haven’t seen much to remove the fact that this bull market should last only another six to nine months. The two-way nature will only increase as we move along, though. Which means only the fleet of foot will see gains the next few years.

I realize the stock market has been frustrating for most investors this year. It is not going to get any easier. Right now, go and look at how your own stock market investments have fared in the first half of the year. Most likely, you are down 2 percent to 7 percent. Now look at how the Dow Jones utility average has done so far. It is up over 12 percent! And you know energy stocks have been doing well all year.

The point is that if you are going to profit from the stock market, you have to work at it. And you have to work hard. This bull market is not getting any younger. And while I may be off on my timing as to when this bull will fade, the next thing after bull is bear. And the next bear market should last nine months to two years. By sitting around waiting for something to happen, your opportunity costs continue to pile up, and soon losses may begin to pile up.

The NASDAQ market, which had such a spectacular run from the April bottom, has been trading slightly down the last few weeks. This is most likely nothing more than a short-term correction/trading range before an assault on the January 2005 high gets under way. There is a high probability that if the NAS can break 2,100 in the near term, it can trade up to the January highs. Whether it has the power to move much beyond that high remains to be seen, and it is not that important today. NASDAQ investors should stay focused on support at 2,000 and resistance at 2,100. Until one of these points is broken, the trading range will continue.

As the S&P 500 came close to setting a new rally high a few weeks ago, several indicators exceeded their March 2005 levels. Price and indicators have since turned slightly south, but the market did experience a positive divergence. This usually means price is not too far behind. I expect a move to new rally highs for the S&P 500 and for most other indexes (possibly excluding the Dow and the NAS) in the near term, as soon as this short-term correction runs its course.

Selectivity, however, is key to scoring gains. Don’t be emotional, just careful.