The US stock market has been moving higher since its mid-August low, after posting a 9.6% loss in only 3 weeks. The Federal Reserve Board’s intervention succeeded in averting the panic that seemed to be settling in, and the markets are much calmer than a month ago.

The markets seemed to be much quicker to react to market forces than in the 1980’s when I first began working with the stock markets. I think this is a result of the computer revolution putting the ability to sell in minutes in the hands of so many more investors. Signs of the times, and one reason why I look at every investment in your managed accounts every day. Things can happen quickly.

Although the market appears to be improving, I do not think a decisive breakout to the upside has occurred. The big one-day move up out of the price bottom accounted for half of all gains since then. Rather than being caused by a change in market fundamentals, these upward price spikes are often caused by short sellers who are betting the market goes down having to buy quickly to avoid big losses when the market begins to go up. “Short covering” often causes sharp price jumps.

Since then, although prices are up a bit, the volume of buyers has been fairly small meaning it will take relatively few sellers to tip the scales back to a price decline. Without enthusiastic buyers, the market is likely to experience another price decline fairly soon, meaning risk remains very high. If we get another decline in the next few weeks, the character of that decline should tell us whether the worst is behind us or not. Right now I am still focused on capital preservation and will give up what seems to be a limited chance for growth to avoid what appears to be high risk.