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Trading Lessons

Stock Market Dead Cat Bounce! Beware of Bear Market Trap

Stock-Markets / Stocks Bear Market Jul 21, 2008 - 05:57 AM GMT

By: Money_and_Markets

Stock-Markets

Martin D. Weiss writes: Bernanke and Paulson's smoke, mirrors and hot air are temporarily buoying markets, luring gullible investors back into stocks! Meanwhile,

Red Check Merrill Lynch just disclosed it was creamed by $40 billion in investment write-downs in the second quarter — $69 billion so far this year.


Red CheckCitigroup has revealed a $2.5 billion loss — and a decline in total assets of a staggering $99 billion so far this year. Plus,

Red CheckThe U.S. Dollar Index is now within one penny of a new all-time low and a new plunge.

I think this could be one of the most dangerous times imaginable for you — and for anyone else who owns vulnerable stocks or equity funds.

With the mortgage crisis and credit catastrophe still deepening ... with the economy still teetering on the edge of a cliff ... with the U.S. dollar hovering near its all-time lows and poised for even greater losses ahead ...

Yes, Washington's efforts to rescue Fannie, Freddie and other lenders have lured some investors back into stocks. But mark my words: It will be a move those investors could regret for the rest of their investing lives.

Every indicator we examine is virtually screaming that this is nothing more than a bear market trap — a dead cat bounce — and that the worst of this crisis is still ahead of us.

My recommendation: If you haven't done so already, use these rallies as your chance — perhaps one of your last chances — to do three things:

First, reduce your risk. That means taking advantage of the bounce in financial stocks to clear out. And that also means shedding stocks in most other sectors as well.

Second, build your cash, stashing most of it in U.S. Treasury bills or a Treasury-only money fund, with an allocation to the world's strongest foreign currencies.

Third, with funds you can afford to risk, turn this crisis into some of the major profit opportunities we cover in our newsletters.

Good luck and God bless!

Martin

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

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