So where is the market headed! What should we expect next? Is another financial crisis on the horizon?
DO NOT PANIC. As long as we remain disciplined and respect BUY/SELL signals provided by our history teacher, we are in good hands. Moreover, this might provide us with a very good BUY opportunity in future...
Due to following global & national issues, market have been very volatile:
- US Debt crisis (resolved for timebeing on the last day.... pathetic!!!)
- European credit crisis (Greece bailed out and now its Italy and Spain in the line...)
- US economy slowing down and initial fears of double dip recession are surfacing
- Standard & Poors rating agency downgraded US debt rating from AAA to AA+ (1st time in US history, however the rating agency acknowledged a calculation error of 2 trillion dollars)
Market decline was expected gradually but a significant 1 day drop caught many by surprise. Monday will be very crucial to watch. The downgrade of US debt is not good for US economy which is already crippled by high unemployment rate and slow economic growth. Two scenarios exist:
- We may see another 200-500 points decline on Monday/next week
- We may get a snap back rally attempt which may not last for long and then gradual decline further
At this point, market risk is higher and unless we get BUY signal, we should stay on sidelines.
Lets look at some examples:
1. Jul 2008 - Feb 2009
2. Sept 2007 - Apr 2008
- We got the SELL signal before the major market decline
- We have steep decline in BPNYA Index, history tells us to expect a short market rally here
- BPNYA Index below 30 which often provides buying opportunity in short term
- We may conclude that after the short rally, market will gradually decline further
What does it mean for our Long Term Funds!!!
401K/HSA/College Fund: If for some reason you still haven't moved your money to money market fund then we might want to hold further and sell into the small rally (if we get one!). However, we have a huge risk especially if get another sharp decline before the short rally. If you already moved into money market then have patience and relax till we get BUY signal.
Traditional IRA/Roth IRA: If you are already invested in list of BEAR ETFs then you are already enjoying the gains you made last week. Make sure you are ready to protect those gains if market decides to make a rally attempt. Just follow BUY/SELL signal as no trading restrictions are applied on these accounts. Choose ETFs based on the strategy provided here.
GOOD LUCK! and stay alert