Volatility could well be the quintessential term when it comes to describing the market of 2007, so why should the final days of the year be any different? As of Wednesday’s close the S&P 500 index was back above its long-term, 200-day moving average and heading for what many thought would be a strong final flurry to finish out 2007.
Well, as the French like to say, "plus ça change, plus c’est la même chose" which translates as "the more things change, the more they stay the same."
In another example of just how unpredictable the market has been this year, today, stocks sold off after news of the assassination of Pakistani opposition leader Benazir Bhutto. The murder of this exceptional, and decidedly pro-Western former prime minister was a big blow to those of us who value democracy and freedom, and to those of us who think the acceptance of these vaunted ideals by the Muslim world is a key component in turning countries away from their faith-based fanaticism and the violent expression it manifests.
In the chart above of the S&P 500, you can really see just how volatile things have been for virtually the entire year. With the exception of the steady climb from March through July, the market has really been in a state of flux. Navigating the market is never easy, but navigating seas as rough as these has been especially challenging for every investor.
One area of the market that hasn’t been quite as volatile is technology. To be sure, there has been a lot of upside in tech stocks this year, but I actually think that upside is likely to be ever greater in 2008.
A big reason why I suspect greater upside in techs rather than the broader S&P 500 has to do with financial stock exposure. Take a look at the chart below of the Nasdaq 100.
As you can see, this tech-heavy index is solidly above its 200-day moving average (red line). It’s also trading above its short-term, 50-day moving average (blue line). As the new year unfolds, I suspect techs and other segments of the market — particularly those without financial stock exposure — will continue to beat the broader market averages.
Right now my Successful Investing service has a substantial allocation to technology stocks, as well as several other segments of the market delivering outstanding returns.