Last week, we saw BIG one day drop in the market. Were we caught off-guard? Not really! Our history teacher guided us and we got our SELL signal on 28th July. Do we still have any doubts about accuracy of this system!!! We don't think so... 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... What should we expect next! Where is the market headed? Due to following global & national issues, market have been very volatile:
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:
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 Above scenario shows BPNYA chart when 2008 financial crisis was underway. A steep decline followed by small rally. But we got SELL signal before the actual major market decline happened. 2. Sept 2007 - Apr 2008 Above scenario shows BPNYA chart during later part of 2007. A steep decline followed by small rally. Again, we got the SELL signal before the actual major market decline happened. Current Scenario: Few things to notice:
- 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 Comments are closed.
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