Lots of questions/concerns:
- Is this the market bottom!!!
- Shall I remain invested and ride this market drop?
- Will I miss the market rally again!!!
- Can market take another plunge, the way it did in month of August 2011!!!
CONFUSION, FEAR, FRUSTRATION...
- CAPITAL PRESERVATION is most important
- NOT TO PANIC
- ALWAYS HAVE A PLAN
Lets take a look at following charts and see if we can arrive to a plausible conclusion:
Key observation in below charts is the duration taken by the market to reach a bottom and the pattern before the decline.
1. Market decline during 2001-2003
2. Market decline during 2007-2009
3. Current market decline and most probable outcome
Why do we believe this is probable outcome!!!
- Earnings season is a month away and market will grind higher slowly into earnings season based on expectations/assumptions.
- Six member US Congress executive committee to come up with $1.3 trillion debt reduction package (hard to reach consensus from both parties causing investors to loose confidence in US economy/markets). This will cause the market to drag down and not plunge yet!
- Euro-zone financial crisis will start escalating. All it takes is a single nation (like Greece) to default on their payments and domino effect will do the rest. In 2008, fall of Lehman in August ignited the domino effect and soon major big corporations were in line. FED has to intervene and US Government had to bailout bunch of companies to stop the bleeding. This time the crisis is at much much bigger level. back then it was corporations going bankrupt and now its NATIONS. Certainly, no one entity can bailout bunch of nations. Now imagine the financial crisis that would emerge as the consequence of nations going bankrupt!!! This event will cause the markets around the world to PLUNGE causing maximum pain to all.
Isn't this a very bold and dire prediction!!!
Well, as we always say, anything can happen. Markets can do whatever it wants. Based on previous market declines and the patterns leading to market decline are very identical with current times. Hence we believe that probable future scenario is another financial meltdown.Remember, this is a "possible outcome" and not "guaranteed outcome" but its always good to be aware of our surroundings. On a lighter note, surprisingly all this might happen in 2012 and even more coincidental thing would be that it happens near December 2012....
Lets hope for the best but be prepared for the worse.....