Market Comments
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Market Comments |
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False sense of security or the start of something
good? We had a pretty good day in the market yesterday but I know I'm not the only one who is nervous about being invested at the moment. That isn't necessarily a bad thing. Nervousness and fear are usually healthy signs of good things to come as far as investing goes. But it is not a guarantee. The market is going to do its thing. There are reasons why the market should or could rally, but there are also reasons why it could continue to go down. My advice right now is for you to dig deep down and decide how much of a risk you are willing to take. If you are getting close to retirement, could you tolerate another 15% to 20% drop? I don't believe that will happen, but it could. What will that do to your plans? Is it worth the risk? If you have 20 years before you have to retire, you certainly don't want to be a part of any kind of a drop like that, but you have time on your side so it may be worth the risk. Don't just do what I do here. This should be a very personal decision. For the record, I have 15 to 20 years left. I like to gauge my nervousness as a tell for future market action. As I said I am getting nervous but what would actually make me want to back out of the market now? For one thing, if Monday's lows do not hold up, I can see another leg down. We haven't had the panic selling I would like to see at market bottoms but there has been a lot of damage done on the sentiment front, and to the indices. If we do get the panic selling, I don't know how low we can go. Possibly 1145 to 1150 on the S&P? I'm crossing my fingers that it holds 1163 and that the Nasdaq holds 2008. So we are either at a short term bottom, or we are near a panic sell off. Who has the coin? Take a look at this data. It is talking about the Nasdaq 100 (NDX), or the largest 100 companies on the Nasdaq, but you will get the idea as the returns are fairly similar across all the inices. This list shows the prior instances when the NDX has dropped 9% with 15 days of making a 52-week high.
During these 13 occurences, there were four times (pink rows) where this action preceded large sell off "crashes" in the range of 13% to 33%. There were 5 times when the 9% drop marked the exact bottom and started rallies of 11% to 24%. The other 5 times the market tended to keep falling for a week to two months with continued moderate losses. Not much to go on but the fact that four major crashes started with the same action we are seeing now is somewhat alarming. So how nervous are you now? It's a tough time to
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