Band bullish

[8/4/11] Ouch! This is no way to greet a guy who's about to celebrate his 60th birthday (Friday). Stocks plummeted out of the starting gate today, bedeviled by an array of troubling news—from Europe's ongoing sovereign-debt woes to the increasingly obvious economic slowdown on our own shores.

At the closing bell, the S&P 500 index had plunged 4.8%, its biggest daily percentage loss since February 2009. Oil tumbled more than $5 a barrel, and even gold—the traditional safe haven in times of financial upheaval—ended near its low for the day, off $7.20 an ounce for the session and more than $25 from its intraday high.

It goes without saying that I didn't foresee this killer wave.

[7/27/11] Is your head spinning yet? Wall Street’s emotional roller coaster is taking investors on the ride of a lifetime.

Back at the turn of the year, strategists at the big brokerage firms were shouting themselves hoarse in an effort to outbid each other’s upside predictions for the stock market. Then the European sovereign-debt crisis broke loose again in May.

Share prices plunged, and so did the mood of the crowd—into bleak pessimism. By mid-June, one typical headline was blaring, NASDAQ FLASHES MAJOR WARNING SIGNALS. Another muttered, in dark technical mumbo-jumbo, IS THAT A DEATH CROSS?

For better or worse, these emotional appeals are part of the investment game. Seasoned investors learn to ignore them or, more usefully, to interpret them as signals for contrary thinking. The euphoria early in 2011 was reason for caution; the more recent panicky commentary gives grounds for optimism.

Enough grounds, in fact, that I’m raising my year-end target for the market. With the S&P 500 companies now likely to chalk up operating profits of $98–$100 per share for 2011, I think the index will bounce as high as the 1420 to 1450 range during the fourth quarter. I’m assuming a modest P/E ratio of 14.5, comfortably below the average of the past 20 years.

For you Dow watchers, my new target works out to a range of 13500 to 13750. Stay cool and calm—you’ll be rewarded!

-- Profitable Investing, August 2011