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Breakout or Bear Market Blip?

There is no denying that stocks are back on the move, and during the past several days the equity markets have rallied in the face of some really bad news.

What kind of bad news? Well, the latest Producer Price Index number was up 1% in January. This is the highest monthly rise in the index in 26 years. Then, we got a report that housing prices nationwide fell nearly 9% in the fourth quarter of 2007.

As if those setbacks weren't enough bad news, we witnessed a slide on Tuesday (2/26/08) in the consumer confidence numbers, which fell to their lowest levels since February 2003.

Now given all of the negatives this market has had to grapple with during the past few days, weeks and months, it is telling that we have staged a rally here of late.

So, is this current rally a breakout, or just a bear market blip?

If we look at the chart here of the S&P 500, we can see that the market has broken above the recent trading range resistance level of 1,370. However, we are still trading below the all-important, 50-day moving average (blue line), as well the 200-day moving average (red line).

My gut tells me that the current breakout is more of a bear market rally rather than a true bullish move to the upside. That said, if we do manage to climb above 1,400, we could be in for a lot more short-term upside in equities.

The question for investors now is what do we do?

One lesson my father taught me a long time ago is that the toughest thing to do during bear markets -- especially during bear market rallies -- is nothing.

We all want to be active and make moves with our money, but right now there is just too much uncertainty and way too many unknowns to start putting your serious money at risk.

If you still have your investment portfolio fully exposed to the risk inherent in the equity markets right now, I urge you to pare down your holdings and start building up your total cash position.

Right now, subscribers to my Successful Investing advisory service are sleeping well at night knowing they are safe from the whims of this bear market. More importantly, they have a plan in place that will help them determine when the coast is clear, and when to safely get back into equities with all that cash.

Fabian Wealth Strategies is a registered investment advisory firm specializing in Exchange Traded Funds. Our philosophy is grounded in transparency, risk management and low cost. We are now accepting new clients for both income and growth portfolios. We want to help you safely grow your investment portfolio and secure your financial future.

Fabian Wealth Strategies offers asset management, financial consulting and investor education on a fee-only basis. To learn more about how Fabian Wealth Strategies an help you, call 800-391-1118 or e-mail info@fabianwealth.com.