Recent market action and alomst every single indicator I follow has confirmed what I had concluded on 6/11/08 and 06/12/08.
So what now, you ask?
First of all, forget about buying breakouts, unless you’re daytrading or short term trading. In this environment, breakouts fail. Face reality. Accept it. The bears are back in control.
Secondly, the focus should be on capital preservation right now. If you still haven’t done so, it’s not too late to:
1. Raise cash levels by selling lagging positions now, and your leading stocks once they start to breakdown. Forget about hanging on and hoping they’ll recover. Remember where MSFT was in 2000?
2. Reduce exposure to even the leading sectors like ag, energy services and steel. I’m not saying blow out those positions completely right now. Just lighten up. Take some off the table and go to cash.
3. Tighten up stops
4. Buy puts or use inverse ETFs to hedge your positions and portfolio.
5. Look at alternatives that are not correlated to the stock and bond markets. Think commodities. I like [[DBA]], [[USO]], [[GSG]], [[JJA]], and [[RJI]].
6. As an alternative to cash / money market, look at allocating your “cash” to currency shares. [[FXA]] and [[FXE]] look stronger than the dollar. Also, the yield on FXA is about 6.7% and 3.7% on FXE.
Some of these ideas are rather obvious, but when the market gets dark, people can get all emotional and stressed out about their money, get analysis paralysis, and just end up sitting on their hands. This is especially true if they have no idea of what their philosophy is and no game plan.
Or, they take stupid actions like buying with both hands, thinking that “the market is oversold”, based on a feeling or what the people on CNBC say. Don’t be among them.
Disclaimer: This information is not intended to be used as the primary basis of investment decisions. Because of individual investors requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Consult your financial advisor prior to taking any actions. The information and opinions contained here are those of the author and are not necessarily the same as those of iBankCoin, its principals or its affiliates. Trade at your own risk.
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