Whenever markets have a tizzy fit, and we get close to seeing our sell stops being triggered, I usually get my share of emails from readers wanting to let me know what their plan of action has been. Bob’s experience is very typical as he went to all cash at the first sign of trouble. Here’s what he said:
I was one of the lucky ones who felt that Greece defaulting on their debt was the one bit of bad news that would send investors running for the door, so I was able to get out of stocks and into cash before it got too bad; lost 1.5 percent as opposed to 13…
I know it is better to be out and wishing to be in so I am actually pleased at the moves I have made but do you think that the pullback was a healthy correction or something more bearish and longer-lasting?
I know you preach about how markets are nearly impossible to call but all I am looking for is an educated guess, and I feel that your guess is better than most if not all…
Would like to get back in but I still think that the jitters remain…any input would be greatly appreciated.
My view is that it’s better to be early than too late when it comes to selling. In this case, it served you well as you missed a large part of the downward move. Your decision also tells me that you are very conservative and probably dislike any fluctuations in your portfolio.
If that’s your concern when the markets retreat, it should be your concern as well, if/when the drop comes to an end, and we head higher. In other words, you’re better off waiting to be sure upward momentum has been restored before making a commitment again. This means not to jump aboard just because we have a one-day rebound, especially during these times where bulls and bears have been trading punches on a regular basis.
Technically, according to my domestic TTI, we’re still in bullish territory, although barely. Since many pros follow the moving averages of the S&P; 500, you could consider waiting with re-entering until its 50-day M/A has been broken to the upside. Since the S&P; currently hovers some 5% below it, the market will have to make quite a convincing move, before reaching that level. At least in theory, it would assure you that it’s not a head fake.
Looking at the big picture, I think downside risk outweighs upside potential, at least at this time. You might want to review Sunday’s post featuring Harry Dent’s video.
You may not agree with all he said, but he makes some good points. I believe, and have said so many times, that the economic recovery has been artificial due to the trillions of dollars having been pumped into various stimulus packages, which makes it questionable whether we have actually seen real growth.
All global economies are tightly intertwined and at any day a news event can affect stock market direction. Try to be methodical, follow the trends, use sell stops, but don’t sweat the small stuff when it comes to being whip-sawed causing you to take a small loss.
The key is to know and accept that small losses can’t be avoided and are simply part of investing; however, participating in a repeat disaster such as 2008 is unacceptable.