I wish I could have you open your first article of the year with good news from me. Alas, the future is still unclear.

The DOW rose by almost 20% above its low of mid-November and this led to some optimism as the stock market is a lead indicator. But this could ‘lead’ us up or down or even astray. You see stock market players are not clairvoyants and they have no special powers and thus in these times they definitely cannot walk on water.

We have seen this so-called lead indicator rally before over the past twelve months but these rallies in fact have turned out to be mere consolidation before the next fall. Is that all we are witnessing now? Well, yes, it could be. And if it is not and what we have seen is the beginning of a new sustained trend then have you missed the boat? No, and as our columnists regularly mention you don’t have to pick the exact bottom to make great money and there are always dips and pullbacks along the way where you can get on board. But timing is everything.

I remain cautious and still 100% in cash because I don’t know what lies ahead. I could be wrong but I don’t want to guess. I want to have a high level of confidence and minimise my risks when I do enter the markets.

I remain uneasy as there are numerous anecdotal symptoms all around me which I am more likely to rely on at such times – rather than historical stats from the government and banks. I see more retail outlets up for lease; I see retirees back working if they can get a job (you can in some low employment sectors); I see both business and personal forecourses and I could go on and on.

In the bigger scale of things we cannot discount some major corporate collapses and the multiplier effects on other businesses, employment, towns etc. The worse things get, the worse they will get – at least in the medium term – because of the multiplier effect.

Much hope in the USA and world economies is being pinned on president elect Obama, who already has acquired one nick – ‘No Drama Obama’ and dare I say there will be a honeymoon period where confidence will climb and then disappointment will set in as there are real limits as to what can be tangibly achieved in the short term by one leader.

At some point a clearer picture will emerge but till then caution will be the name of the game. But get ‘ready set (go)’ as the time will come. For short-term traders – this is your day in the sun as we see much oscillation in the coming weeks.

Best wishes for 2009.

Enjoy the ride!

Tom Scollon
Chief Analyst
Trading Tutors Team