Market Up 50% -greatest advance since 1930's

Will Newton's Law of Gravity apply in August?

After a 50% rise from the March 9th low any prudent investor would rationalize it's time for a 10% correction. Of course, in June after the DJIA had fallen 6% from a high of 8,600 everyone was talking..."head and shoulders"..."sell now were going back down to 7,500". Yet, the market denied many "experts" their prediction once again. It soared up over 1,100 points to reach 9,200.

The now 50 percent S&P rally from the March lows is the best move in stocks since the 1930s!!! The Nasdaq is up an astounding 59 percent. Stocks have recaptured the levels from early October.

What Now?

Ok, now what? Well, if you do not believe in little green shoots and assume this is a cyclical Bull in a secular Bear market like in 1929-34 then you're cashing in your chips or shorting any stock that's had a big run. But as I watch the daily market indicators I see mostly strength and little weakness. Why? How can this be? Is this rational?

Drawing Wisdom from past legends.

Let's draw wisdom from a man who needed his father to bail him out financial when he was nearly wiped out at the onset of the Great Depression in 1929...John Maynard Keynes said it best: "The market can remain irrational longer than you can remain solvent". And a more famous money manger legend, Sir John Templeton, said Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. I'd say were still in the "skepticism" phased based upon all the disbelief about "green shoots".

Adding in my insight.

Yet, is the market really irrational, rational or just plain emotional? Maybe it's all of the above. This I know...the market is always forward looking. The cumulative wisdom of the market is betting the economy will be better in the second half of 2009 then the first half.

And now investors in the market are being helped by two groups: FIRST -traders who believe the market must correct (so they short stocks) and SECOND -by the billions of Money in Money Market Funds where people are realizing their earning less than 1/2 of 1%. With 6 months of a positive market MMF people are now more emotional comfortable with moving money into the market which pushes prices higher and forces those short-traders to cover their bets. Thus, it's the inverse of last summer where selling begets more selling.

Historical facts about August

Since I'm not paid to make forecast for Finance Toolbox or selling investment news letter subscriptions let me just leave you with some additional education for you to consider. According to market research in an article written by Nick Godt of MarketWatch here are the facts:
The market, as measured by the broad S&P 500 index, has advanced in August 60% of the time in the 81 years since 1927, for an average gain of 4%, according to Standard & Poors. And since 1999, August has brought gains seven times out of 10.

Since World War II, August months have tended to bring gains but not by as much as in other months of the year, according to RDM Financial. Since 1945, August has returned 0.4%, placing it 10th among the 12 months of the year.

"However, when the economy is rebounding, then the market has tended to put in a much stronger performance [in August]," said Michael Sheldon, market strategist at RDM.

Many market observers believe that back in March, the market has hit its lows of the bear market that followed the financial crisis. And on the 14 occasions that have followed bear-market bottoms since 1932, the S&P 500 has risen 10 out of 14 times in August for an average gain of 1.2%.

"Past performance is never 100% guarantee of returns in the future," Sheldon said. "But the outlook for August continues to be more positive than some would think," he said . I'm with Michael the correction may have to wait until month end or September.