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This "Junk" Rally Could Burn Stock Investors



August 12, 2009 – Comments (5) | RELATED TICKERS: MSFT , C , F

To the bulls, I say: I suppose one must take one's gains where they are to be found. However, you should be aware that the recent rally is built on shaky foundations; indeed, it is the poorer-quality companies that have experienced the largest gains. [more]

5 Comments – Post Your Own

#1) On August 12, 2009 at 3:16 PM, ayekappy (< 20) wrote:

My wallet has known this for the last few months.  Hopefully that insane fraudster is right about a mega crash on Friday.  If CIT goes bankrupt, things will certainly get very interesting.

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#2) On August 12, 2009 at 3:23 PM, XMFSinchiruna (26.50) wrote:

great article Alex ... the longer the rally persists, the more bravery it requires to stand up and declare the whole thing a giant farce with no fundamental support beneath it. Thanks for standing up! :)

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#3) On August 12, 2009 at 3:25 PM, StopLaughing (< 20) wrote:

During the 666 debacle the weakest, highest leveraged stocks were hit the hardest. As the economy improved and those weak stocks did not go bankrupt but pull back from the brink then they rocketed up.

That is not bad.

The market was not rational at 666. It did not price properly in a panic. It is pricing these highly leveraged companies better now.  And many of them have made deals to improve their most pressing debt. 

In an up turn leverage magnifies gains.  This is not a normal recovery. But it is a rational one. 

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#4) On August 12, 2009 at 3:54 PM, ayekappy (< 20) wrote:

Ha Ha Ha Ha

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#5) On August 12, 2009 at 3:55 PM, prose976 (< 20) wrote:

#3 has a rational view of the situation.  While the rally may not continue to blast upward, a foundation of fair value is being established here, with lots of $$$ to solidify it.  At 666 it was just panic, chicken little time, exacerbated by stop loss orders and dominoe effect selling down to that level.  It was based on an "end-of-world" scenario.

I'm not saying to buy and hold indefinitely, but don't sit it out.  Actively manage your portfolio, take profits, buy more undervalued companies.  Repeat.  Just like shampooing, but profitable.

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