Do Not Panic

Today, I received an e-mail from Barbara. She was concerned about the recent market developments. I have several things to say but the most important thing is DO NOT PANIC!

Stay calm. Be at peace. Inhale and exhale.

Perspective is always a good thing.

Now on to the market....

1. Do not panic. When we are most fearful is when we are most moved to sell at the bottom. That is a fool's game. We are in buying times, right now, not selling times. Remember that it is always best to buy when others are in panic. I must confess that the drop since mid-July has taken me by surprise. This surprise leads me to point number 2.

2. Is the market gonna' crash? Yeah, the market is going to crash. Is it going to crash tomorrow? Nope. Is it going to crash next week. Nada. Nyet. No way. The market is now extremely oversold. Even if we are in a severe down trend (which we are), bounces happen. At a minimum, the S&P 500 Index should bounce up to the 200-day moving or 1280ish. That's a big increase from today's closing price of 1200.

3. Why do you feel so anxious about the market, you might ask. Well, we are hard-wired to be social creatures. We take the greatest comfort when we are part of a herd. Well, now the herd is in a state of Def Con 4 panic. You feel the panic and worry. Look at the headlines on the web. Listen to the commentators on NPR and CNN. Panic is in the air. That means these are actually the best times to buy. Remember, Contrary Opinion works. Resist that anxious feeling. Remember that markets do bounce. And they tend to bounce up to moving averages. If you can remember that little gem of market wisdom, you might feel less anxious about tomorrow and next week.

4. The character of the market has changed. These wild swings up and down signal a broadening top pattern. The market is very emotional and out of control (not a comforting thought for pension funds and 401(k) plans). It is what it is. We cannot change the market. We cannot will it to go up. Not going to happen. From what I see, the wisest move is for us to sell out on the bounce. The upcoming bounce should be pretty extreme. Remember that bounce into July 1? I think we are looking at a similar bounce in the near future. We want to sell out of the C Fund on that bounce. In Bear Markets, we sell the rallies. We do so because the past nine days are just an appetizer which brings me to my final point.

5. We want to avoid with all of our effort the drop that follows the next bounce. The next drop will be a sight to behold. I hope to behold that sight from the sidelines. These broadening top patterns are diabolical because trends fizzle out. But these patterns are also a blessing because they alert us to prepare to get out of Dodge on the next bounce.

Sadly, that is the state of affairs this evening. We are waiting for a bounce to sell out. The coming two months will not be fun months in the market.

Your sometimes AWOL commentator,

Wink