Some Big Picture Perspective

We are now taking a break after a tremendous run-up from the bottom of the housing/financial bubble bear market, which is the 4th most severe bear in at least 100 years.

Much of the bounce off the bottom of this Panic of 2008 was a re-pricing of beaten down stocks from major investors who had priced in depression-level, worst-case scenarios in companies representing all sectors of our economy.

As it became apparent that we were not headed for a depression, the big money (mutual funds, pension funds, etc.), which controls over 70% of the money in the stock market, began entering the stock market once again. Many stocks did an about-face from their harrowing slides and headed upward, creating deep “V” shaped charts.

The stock market itself, represented here by the S&P 500 chart, shows a deep “V” shape to it.

For the individual growth investor, it was essential to wait for a clear signal off the bottom of the bear that the market was ready to go higher. There were so many abrupt bounces off of false bottoms through the bear market, that one had to be exceedingly patient for the bear market to exhaust itself.

The opportunity finally came shortly after the bottom of March 2009. One serious problem was that the economy was in such bad shape, it was difficult finding quality stocks. In a healthy bull market, one has a difficult time picking between several stocks showing tremendous earnings per share and sales growth. In the after math of a bear market, one has a difficult time just finding stocks that show strong earnings per share and sales growth.

Now that we find ourselves approaching a level just below the level in the stock market marked by the Lehman Brothers collapse, the number of healthy growth companies to choose from is much better than just a few months ago. Challenging older levels seems much more reasonably with better fundamentals.

We are in a correction, which provides an opportunity for growth stocks to set up in proper basing patterns, digest gains through minor corrections and shake out weaker investors, and hopefully run higher after a break out above pivot points.

Now is the time to be searching for fundamentally strong companies setting up in constructive technical patterns. I’ll be posting such companies here over the coming days.