February 3rd, 2012
The big news today is that the Tech sector, as represented by the Nasdaq Composite Index, crossed into territory it hasn’t seen for more than 11 years (chart below is as of noon; actual close was 2905.66). What this means is that the average Tech stock has surpassed the previous high set before the market’s collapse in the Financial Crisis Crash of 2007-09; new highs are breaking out in many tech stocks.
- What does “market timing” mean (or more correctly, what do I mean when I use the term “market timing?”) and
- With the market having gone up so far, it isn’t the time to jump in but rather the time to take profits and exit?
I’m not sure there are any “correct” answers to these questions …. and don’t let anyone who gives you an answer tell you that it is the correct one ….. there are only opinions. So what I’m about to offer is my opinion and the discipline I intend to follow as hopefully the market enters into its next bullish phase.
To me, “market timing” means catching the beginning of a big wave and staying on until the end. The most fun (read “fastest, easiest gains”) is in the earliest part of the ride; the hardest, roughest part is towards the end. Earnings are multiples higher than they were in 2000 so, with the average tech stock now reaching heights it hasn’t seen in over a decade, I’d say this is the beginning of that ride.
That’s not to say that this ride won’t hit some bumps along the way. There probably will be a retracement back to that resistance trendline at the 2007 high sometime over the next year in the form of a “buyers’ remorse correction” as many will second guess the advance in the light of some bad news (we can’t predict what that bad news might be but the “Talking Heads” in the business news media will create a story and claim that it’s the cause). But that, too, will pass and the market of tech stocks will continue advancing.
Within the realm of possibility is seeing the Nasdaq Composite nearly double over the next 3-4 years and test its all-time high of 5132.32 made in March 2000. It will take determination and iron nerves but it could also be extremely rewarding if you pick and stick with the right tech stocks and, if you make a mistake, quickly cut your losses.