Yes, It's Really a Correction...and Now a Dow Theory Bear Market Signal?
So after yesterday's extensive analysis of the actual percentage declines of important stock market averages showing how carefully we assessed whether or not Friday resulted in an "official" correction, yesterday's awful numbers settled the issue. Okay, so it's a correction.
By now, you should realize that the calls for buying the dips will increase. We'll skip quoting any "experts" here. It's pretty much a waste of our time. The calls to buy have already come and will continues. The question is: Should you buy stocks now?
The easy answer: If this is the "needed" correction that any healthy market requires to re-energize itself, then of course you should. However, if there's worse to come, then...well, we don't need to explain this, right? But let's now get a bit more specific.
First of all, this whole "official" correction stuff that's worked its way into the media is a fairly recent development. So, frankly, it's mostly nonsense. There's nothing magical, nor really all that important, about 10%, except that it's a round number.
Now to what our response to today's action will be. Well, since we follow Dow Theory to get a feel for the longer-term term, or as they call it the "Primary Trend" of the stock market, it's pretty much now clear that we're looking at a bear market. To give you the simple version, both the Dow Jones Industrial Average and the Dow Jones Transportation Average hit lows this year, then turned around. The DJIA then hit a new high, but that was not confirmed by the DJTA. Such a non-confirmation raises a red flag. And now that both the DJIA and the DTIA have fallen below previous lows, a bear market signal has been given.
So we assuredly won't be buying dips in the general stock market averages. We're glad we've got some balance in our investments that finds us invested in assets having nothing to do with stocks. We'd expect those assets, based on past patterns, to at least provide some offsetting action that protects us from further stock price drops, if not provide a reasonable profit somewhere down the road. (These things don't all come to fruition on the same day. You need to give it some time to work out.)
Will we sell our stocks? Well, we did trim in recent months (although it never seems to be enough when you experience drops like we just saw over the last two days). As for what we'll do going forward, it's not yet decided, although we've got our usual plans in place - as should you.
More importantly, though, if we're in a bear market, it's not just whether or not you should own stocks that should be of concern. Bear markets don't just mean that stock prices have fallen, and will not be going up any time soon. We'll likely talk more about this in future posts.
For now, though, despite our best and most successful efforts to remain calm in the midst of the storm, I could use a break and hope to get a good night's sleep for a few days.
By now, you should realize that the calls for buying the dips will increase. We'll skip quoting any "experts" here. It's pretty much a waste of our time. The calls to buy have already come and will continues. The question is: Should you buy stocks now?
The easy answer: If this is the "needed" correction that any healthy market requires to re-energize itself, then of course you should. However, if there's worse to come, then...well, we don't need to explain this, right? But let's now get a bit more specific.
First of all, this whole "official" correction stuff that's worked its way into the media is a fairly recent development. So, frankly, it's mostly nonsense. There's nothing magical, nor really all that important, about 10%, except that it's a round number.
Now to what our response to today's action will be. Well, since we follow Dow Theory to get a feel for the longer-term term, or as they call it the "Primary Trend" of the stock market, it's pretty much now clear that we're looking at a bear market. To give you the simple version, both the Dow Jones Industrial Average and the Dow Jones Transportation Average hit lows this year, then turned around. The DJIA then hit a new high, but that was not confirmed by the DJTA. Such a non-confirmation raises a red flag. And now that both the DJIA and the DTIA have fallen below previous lows, a bear market signal has been given.
So we assuredly won't be buying dips in the general stock market averages. We're glad we've got some balance in our investments that finds us invested in assets having nothing to do with stocks. We'd expect those assets, based on past patterns, to at least provide some offsetting action that protects us from further stock price drops, if not provide a reasonable profit somewhere down the road. (These things don't all come to fruition on the same day. You need to give it some time to work out.)
Will we sell our stocks? Well, we did trim in recent months (although it never seems to be enough when you experience drops like we just saw over the last two days). As for what we'll do going forward, it's not yet decided, although we've got our usual plans in place - as should you.
More importantly, though, if we're in a bear market, it's not just whether or not you should own stocks that should be of concern. Bear markets don't just mean that stock prices have fallen, and will not be going up any time soon. We'll likely talk more about this in future posts.
For now, though, despite our best and most successful efforts to remain calm in the midst of the storm, I could use a break and hope to get a good night's sleep for a few days.
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