Market Outlook: The realities of any stock market recovery

Many are looking for a rally in the stock market but when you look at the mechanics of that it is surprising. I have been asking investors I know if they knew the market was going to make a major rally in the coming 4-8 weeks, would they be buying stocks now. They answered with the following responses:

- I don't have any extra cash to put to work
- I won't trust any rally
- I am done with the market and have cashed out. I am ruined!
- The small investor doesn't have a chance
- I have no money but I am not selling. Waiting for the market to go back where it was and then I am getting out

These are very interesting comments because they point to the fact that the only ones to get us out of the depths of this market collapse will be the major players such as Retirement Funds, Institutional Investors and the Investment Banking community or Wall Street, as it is known. Let's look at the practical difficulty here.

For a moment let's see what it would take just to get back to 10,000 on the Dow. We sit here at about 6,500 currently so we have dropped about 35% from 10,000. To get back to 10,000 from 6,500 we will need to go up 53.8%.

So one thing we can count on for sure is much less Volume of trading based upon the above comments from the average investor. Secondly, we know many funds, Institutional Holders, Hedge Funds and Retirement funds have been decimated in value as well. They have had to sell stocks to raise cash to cover anything they bought on Margin. So they have less dry powder to invest than they had 6 months ago. So to get back to a surging market is at best going to be difficult. And because Volume will be less than before, it will be easier to manipulate the stock with whatever the big players want to do. Many still would like to get out of the market and so will sell into any rally, minimizing the rise in the market.

I think I can say this with confidence, those who are waiting for a recovery, will have a much longer time to wait than they are planning right now. If that is true, then raising cash is in the end the best way to get there as a small investor because you may need to be more flexible and move to stocks having greater moves than the ones you currently own. I don't know which sectors are going to eventually lead us out of this so looking at the data when the market begins to recover will be your best bet. Some sectors are less affected now such as drug manufacturers and healthcare but no one knows what sector will begin the march up. I have heard on CNBC a number of experts say it will be the Financials since they got us here. But now it is difficult to see which banks will be around and which will not. So be prepared for a long wait and make the moves to get yourself ready and in position to take advantage of any genuine market move up.

While these comments may make you feel more depressed, it is better to look reality in the face and adjust strategies. Talk to your professional advisor and get as prepared as you can. If you have a job, you are in better shape than over 15% of our population. Be compassionate to others less fortunate, as your circumstances dictate. Try being more positive and supported of President Obama and what he is trying to do to get it right for all of us. Don't accept the divisive comments by ideology driven Republicans who have one answer for everything, tax cuts.

"Blessed are the peacemakers; for they shall be called the children of God." Matthew 5:9