Unease Toward Near-Term Prospects

I hate to say it, but I don’t like the tone of the stock market right now. There are a lot of good companies out there reporting solid financial results, and all we hear about is the bad news — that is, those companies that missed estimates, and subprime mortgage fears.

I have never really believed that media can influence stock prices, but I’m quite sure it influences individual investors and their willingness to participate in the stock market. So, taking into consideration all the available information right now, I’d have to say that investor sentiment is quite weak, and this doesn’t bode well for the future.

As you know, the stock market recently experienced a few significant drops in the main market averages, then recovered. In my experience, these are warning signs for the near-term direction of stock prices.

These one-day drops are like shots across the bow before the battle begins. It doesn’t mean that we’re going to get a correction for sure, but it does mean that the probability is increasing. I have to say that investment risk is high right now.

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The big story in the stock market continues to be the strength of large-cap companies. Smaller companies are doing well, but I’m finding very few new attractive investment opportunities in this sector of the market right now. Not for a lack of effort, but most of the great small-cap investments out there have already gone up in value. The fact is: we’re in a bit of a lull right now in terms of hot stocks in which to speculate.

Really, the only strategy to get through the next quarter is to keep riding your winners, cull your losers, and basically sit on the sidelines. If you have to build some cash in your portfolio, that would be a good thing. I hope I’m wrong, but I don’t feel good about the near-term prospects for the broader stock market.