Light at the End of the Tunnel; Market Commentary from J. Peter Lynch
Solar Stocks Commentary from J. Peter Lynch
When to get back in to the Market
Point Roberts, South Salem, New York - June 9, 2010 (Investorideas.com renewable energy/green newswire) - Investorideas.com and its green investor portal, renewableenergystocks.com publish new market commentary from solar contributor, J. Peter Lynch as a follow up to his June 8th article.
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Light at the End of the Tunnel
In my last article I said, in effect, that investors should "keep their powder dry" and not try and rush into the market until the picture becomes clear as to the longer term trend of the market.
I have received a number of e-mails regarding some of my past comments and I wanted to share two questions that I think may be of interest to investors:
- I am on the sidelines mostly in cash, as you have mentioned in numerous articles and have missed most of the recent slide in the market. How will I know when to get back in to the market?
- In a number of your articles you mention that investors should look to buy, when appropriate stocks that have high relative strength. Can you explain this more and maybe give an example?
When to get back in to the Market
When to get back into the market is really a question that depends upon the objective of the investor. Some are looking to invest longer term and others, at the opposite extreme are traders that move in and out of the market daily.
However, one thing to look for in the current market environment is a dramatic day or days in which:
- The advance/decline ratio (# of advancing stocks/# of declining stocks for the day) shows a very large difference in which there are far more advancing stocks than declining stocks.
- Also looking at the volume ratio of the advancing stocks and the declining stocks and once again looking for a very large difference in the volume of the advancing stocks over the declining stocks.
As an example of this, on Tuesday March 10th 2009, the day AFTER the bottom of the last bear market, the market had a big up day. The question that everyone had at that time was: is this a bounce in a bear market or the beginning of a new bull market? Well on that March day the number of advancing stocks was 12X greater than declining stocks and the volume on the advancing stocks was 27X greater than the declining stocks. In fact, there has never been a day in the last 50 years where these ratios were greater. On March 18th, after looking at this data and the historical precedent I felt there was significant opportunity for investors and I said the following:
"Nothing is 100% for sure, as we all know. But I think we are either at a significant bottom or very close to it. Everything is so "oversold" at this time, that I think the worst case is that we get a significant rally in what could still be a bear market". J. Peter Lynch 18 March 2009
In the current situation the market may not give us such a "clear" signal, but it will certainly have days that will give similar notice that the market has turned, that the selling has stopped and that demand is back in control. This will be the time where opportunities will present themselves to alert investors.
Buy Stocks with high Relative Strength
What I am referring to in this statement is to look at the stocks that have "held up" the best or have performed the best relative to the market and to their sector peer group. These are generally the stocks that will drop the least in a down market and turn around the fastest in an up market.
Examples of this type of stock are two stocks that are in our renewable energy list: Cree Research (CREE) and Veeco Instruments (VECO), both are stock plays on the coming LED lighting transition.
Since the beginning of the year VECO has declined 3.57% and CREE has actually increased 9.03% as compared to the Dow dropping 4.68% and the NASDAQ dropping 4.34%. This is a clear example of stocks that are performing better than the averages and also better than the stocks in their peer group, most of which as down well into the double digits.
This is no guarantee, but historically these are the type of strong stocks that, when the market turns they will turn positive faster than their peer group and possibly even in advance of the market turning positive.
J Peter Lynch
Mr. Lynch has worked, for 33 years as a Wall Street security analyst, an independent security analyst an investment banker and private investor in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this field. He was the contributing editor for 17 years to the Photovoltaic Insider Report, the leading publication in PV that was directed at industrial subscribers, such as major energy companies, utilities and governments around the world. He is currently a private investor and advisor to a number of companies. He can be reached via e-mail at: SOLARJPL@aol.com. Please visit his website for the promotion of solar energy – www.sunseries.net
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