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Why a big market rally right now would be no reason to get excited

Sam Ro
Managing Editor

Investors and traders losing their shirts amid the ongoing global market selloff would surely love to see a sign that the worst is over.

Unfortunately, a big stock market rally right now would be far from an all-clear sign.

Regarding the intermittent rallies we’ve seen during last week’s selloff, Quad Group’s Peter Borish says to be wary of what may appear to be the beginning of a big rebound.

“We know the first bounce is always the largest,” Borish said on Yahoo Finance’s The Final Round on Friday. “We've talked here [that the recent selloff was the] biggest decline since '08. Those rallies in '08 were their largest rallies in history. But the market did not bottom until March of '09.”

Indeed, on its way down during the financial crisis, there were plenty of face-ripping rallies. On Oct. 13, 2008, the S&P 500 (^GSPC) surged 11.6%. On Oct. 28, it jumped 10.8% to close at 940.51. But as some folks will remember, the S&P trended lower for another five months before hitting an intraday low of 666, a 30% plunge from that Oct. 28 rally.

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“When the knife is falling, which it is now, I recommend to do nothing, because if you try to catch the knife, and it hits you in the heart, it's pretty painful,” Borish said. “So, that's buying on the way down.”

For long-term investors, the best move is to focus on one’s long-term investment strategy and avoid making attempts to time the market. Because, few people have found success accurately timing short-term market tops and bottoms. As they say, building wealth is not about “timing” the market but “time in” the market.

For short-term traders, Borish offers some guidance to the folks who want to play “hero ball.”

“Wait for it to bounce. Wait for the oscillations to get more and more narrow,” he said. “Then it's safer to ... pick it up.”

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Sam Ro is managing editor at Yahoo Finance. Follow him on Twitter: @SamRo

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