Last week alone was enough to change market dynamics. As we mentioned earlier, no deal (regarding US debt) in sight was the reason investors are loosing confidence in the market. We got our SELL signal on 28th July..... This weekend is very crucial as politicians are scrambling to come up with a deal. On Friday, House passed a bill which was rejected on arrival in Senate. In short, our politicians are proving the case to the World that it does not matter which nation on earth it is! It does not matter which party the politicians belong to? Its all about politics and POWER. Who cares about economy and people!!! As long as it does not hurt the politician themselves, they will do what they want... BUT wait a minute, as I am writing this, President OBAMA just mentioned in the news conference that we might have a deal which is agreed upon by both party leaders, all we need now is VOTEs! Most likely Congress will manage to pass it.... What does it mean to the market? Investors showed their concern and the market was down last week. However, we haven't seen panic selling yet! If by Sunday night / Monday morning, US Congress does not come up with any feasible US Debt deal in sight then we might see PANIC selling in the market. As of now, we have a deal in sight and Congress will pass it by the deadline. This will give markets a reason to rally from oversold conditions. Two scenarios might play out: 1. We have a deal - Immediate reaction will be market rally but can it sustain!!! The earnings season will be over by end of 1st/2nd week of August. European credit crisis will be in the forefront and weigh on the market causing the decline. 2. We have no deal by deadline of 2nd August - We may avoid the immediate default but loose our AAA credit rating, which will cause immediate SELL-off in the market GLOBALLY. Unfortunately, US will take the major hit. US currency down, stock market down, bonds also down. Economy on the way to another recession called DOUBLE DIP. First scenario seems to be the most probable outcome at this juncture... From BPNYA Index chart above, it is apparent, when we got BUY signal and SELL signal. If you have read the material presented on this site and follow this blog then you know what to do when we get BUY/SELL signal.
What does it mean for our Long Term Funds!!! 401K/HSA/College Fund: We got a SELL signal, conventional wisdom says time to move into money market. BUT we invested when we got BUY signal and its not a month yet (30 days trading restriction), what do we do? Well this is called "cost of doing business". Most likely market will rally once we avoid default and some sort of deal is reached. This will provide us an opportunity to SELL into strength avoiding major loss. Restriction of 30 days should be over (depending on when you invested after we got BUY signal) by 1st/2nd week of August, after which most likely market will decline as earnings season will be over and guidance from most companies is cautious. Traditional IRA/Roth IRA: Just follow BUY/SELL signal as no trading restrictions are applied on these accounts. Choose ETFs based on the strategy provided here.
andre
8/2/2011 01:32:44 am
Wouldnt the best way to trade this system be to use an investment vehicle in your 401k that has less than a 30 day restriction? For example I have some in 401 that limit round trips for 15 days. This would give us a better chance of being able to be more nimble in out ins and outs no?
Admin
8/2/2011 02:22:55 am
Good to see that you are taking charge of your portfolio. You are correct, if your 401K allows then sure by all means you can choose those Mutual Funds. But that is not the norm... Comments are closed.
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