An Allegiance To Reality

Up, down and all around.

That pretty much sums up this market during the past couple of weeks, as investors grapple with questions of recession, inflation, record-high oil prices, the credit crisis and a dismal real estate market.

Some say the worst is over for all of the pain we’ve seen in equities, while others say the worst is yet to come. But who is really right? Which camp has the truth on its side, and which is just hoping for the outcome it desires?

I am going to come clean here and admit to you that I am not smart enough to predict the future. I suspect that no matter how smart one is, the future is not knowable because it just hasn’t happened yet. (I know, that sounds like something Yogi Berra would say). I know this may sound simple enough, but you’d be surprised how many self-proclaimed psychics there are working on Wall Street.

I, for one, prefer a different approach. I am a man who has proclaimed his allegiance. My allegiance is to reality, and that means I am prepared to go where reality takes me.

In practical terms, this means that if the market goes higher, and if it breaks above its long-term moving average, I will get back into stocks. If, however, the market falls from its current levels and decides to go on another bearish bender, then I will opt for the safety and security of a high cash position.

As you can see by the chart below of the S&P 500, the market is trading above its short-term, 50-day moving average (blue line), but still below its long-term, 200-day moving average (red line).

My allegiance to reality compels me to acknowledge a potentially nice uptrend in equities if we can break above the 200-day moving average. My reality-based perspective also tells me that if we fail to break above — and stay above — this mark, we may be in for a lot more up, down and all around.

If you want to pledge your allegiance to reality by taking an objective approach to investing, then my Successful Investing advisory service is for you.

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