Patience is the Name of the Game

Right now the stock market is in a fragile state. It just doesn’t know where it wants to go. The good news is that the price of oil and gasoline is falling so consumers will feel better about filling up at the pump.

My best guess so far is that the broad stock market indices can rally later in the fourth quarter. This is the traditional strong period for stocks. Over the very near-term, however, I’m really cautious.

September and October can be terrible months for stocks. In a sense, all pertinent information comes forth in these months conspiring to create the “sum of all fears” for investors. Literally, anything can happen to the stock market during these months.

As I’ve mentioned before, the stock market needs more certainty regarding the inflation situation. If it can get it, then stocks can rally into 2007. If not, we’re left with the current lackluster environment of range bound, directionless trading.

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This doesn’t mean there aren’t great investment opportunities out there, only that the price action for most stocks isn’t as likely to be as robust. If it was my money, I’d be sitting on the sidelines right now waiting for some clear direction or catalyst to get the market averages moving.

In the absence of an upward trend, I’d keep my winners and cull my losers. With lousy stock market conditions comes opportunity to get into positions at attractive prices. So, I’d sit on my money in this environment, keep a keen eye on some attractive new prospects, and wait and watch until there’s some really good news to get things going.

If you’re an active trader, you’re likely to have a difficult time over the near-term. A little patience is the name of the game right now. Hopefully by the end of October, we should have a clearer outlook for inflation expectations and the stock market.