Buy low and sell high is the way to generate stellar returns in the stockmarket so the old saying goes. And we see no reason why this simple strategy won't continue to work well for the rest of the year.

When the market looks very good beware, consider taking profits or at least be wary of buying new stock. But when the market takes a real hit, probably over a short period of time, be brave and consider accumulating stocks.

Note - Those that have been following this newsletter over the last few years will know we're big fans of using The Sunday Times Money Section (the personal finance section, not the business one) as a contrary indicator. When that carries a big flashy headline on its cover alongside a major market move then doing to opposite has been a real money trade for the last 2 years.

The 4th March 2007 headline in big bold letter was 'Is It Time To Quit The Stockmarket?' The following day the FTSE 100 made its low for the move.....

The FTSE 100 Daily Chart - 2 Months

How The Fed Propped Up Wall Street In Late February 2007

Interestingly, but sadly these days predictable, it was strongly rumoured that the US Federal Reserve called the major investment banks mid afternoon on the 27th February 2007 'looking for quotes in the stockmarket futures' - market code/speak to say they were looking to buy. However, by just saying the phrase a Central Bank never has to actually buy. Instead, the word circulates in a matter of seconds/minutes and the market gets one hell of a boost.

The S&P 500 as you can see by the chart below shot up around 20 points in less than 20 minutes. Clearly the market believes, and rightly so at the moment, that whenever really bad news hits the market the Fed will be there to help. No doubt the White House if pressed on this matter will cite that it's in the interest of 'National Security' for Wall Street not to suffer.

This is a rough example of how adding liquidity can help stem any sort of market decline, at least in the short term. However, what would be tough for the Fed to combat would be what some refer to as a leaking bear market where prices fall almost every day but only by a small amount. With this kind of market move the negative psychology never really has a chance to bite investors hard because the panic selling is just not there.