After 11 years of roller coaster rides in the stock market which have only intensified in recent months investors are happy to use their money for Christmas shopping and debt reduction instead of investing. If you look at what people are typing into Google last month you will see that 12,100 people looked for How To Get Out Of Debt while only 9900 searched for How To Invest In Stocks.
While this may not be the most sophisticated method of analysis but it’s more accurate than you think. If you read reports put out recently by Lipper Analytical and Trim Tabs you will see they confirm the notion that investors are fleeing the stock market and choosing to pay down debt with their cash instead.
The same thing happened in the 1970′s and didn’t bottom out until late in 1982. By the time the market turned up in the second half of 1982 no one cared. When the market broke out in 1983 no one believed it. They had been tortured in stocks since the high was reached in 1966 so no one wanted to be in stocks any longer, they were much more apt to hold gold or silver. That was the point where stocks took off in an 18 year bull market and commodities spent 2 full decades in a bear market. We have not reached that point yet, but we are well on our way. In fact, looking at the chart below which can be found at StockCharts.com it appears that we are roughly in December of 1977 right now so we have a good 5 or 6 years left to go before another bull market appears in stocks.
This does not mean that the stock market can’t make marginal new highs in the next couple years, but a major bull run is still off in the future if we are to believe the past. That’s what causes people to abandon the stock market in droves, each time things start to feel good they take another spill to the downside. When the pain gets to great they bail out once again with losses. It’s a long torturous process that leads to an entire generation abandoning the stock market. I am in that generation. I caught the tail end of the stock market rally in the late 90′s but by the time I had any significant money to risk the ride was over. After getting pounded in the stock market I made back my money in Gold and Silver but have never made much in stocks. It’s been a tough environment to win in stocks because when the indexes turn down, everything plunges regardless of how good the company.
As a trader I know this cycle will persist a few more years and then stocks will once again be king. So when the market is taking hits I’m going to be buying the Nasdaq ETF (QQQ) as that tends to significantly outperform the S&P 500 ETF in bull markets. The small cap Russell 2000 also tends to outperform at the beginning of the cycle but the big winner overall is usually the Nasdaq 100. So QQQ is the best place to be for the long haul.