Bill McLaren, whom I think highly of, laid out a scenario for a crash in the US market on CNBC Europe that you can read here. The basic idea is that a weak rally that makes a lower high sets us up for a crash. He did not say whether more selling would lead to a crash. Since he has a track record of predicting crashes I will leave this to him.
A reader asked whether I am a buyer in here anytime soon. The short answer is I might buy a couple of income oriented things but right now I am not looking to replace what I sold down just yet.
It seems like more and more people think the market will crash. While I might heed Bill's warning if his scenario plays out I won't worry about calling a crash but instead will revisit a couple of ideas about crashes.
The history of crashes is such that they come at closer to bottoms than tops. The crashes I have lived through first hand have been better to buy and so if we drop 20% in one day I will be a buyer for clients. I confess I am not sure what I will buy, I don't think I have to solve that now but this could be an instance where a couple of ETFs make the most sense. If we drop 10% in a day, that would be a tougher call. I might buy something the next morning.
I would file this under this is how the market works. I will not advise anyone reading this to do what I do, but keep in mind the market has crashed before. It will crash again. I kind of doubt there will be one this year but I don't know. What I do know is that crashes are not new and that in time markets recover.
If you know they have happened before and you know it will happen again it should rationally remove some of the emotion from the event. It will happen again, it will not harm you physically, the market will not go to zero and at some point it will recover. This happens over and over. In this context, being overly emotional is unnecessary.
Wikinvest Wire
6 comments:
After the 1987 crash, the best thing to do was to wait a month.
Fred
fair point. In some other instances one month has been too ling to wait. Since no one can know for sure I am more likely to buy a crash when I know panic is still off the charts.
It seems a more comforting way is to wait a month. Get a bead on things. I can not think of any other crash except '87. If I had not seen it, I would not believe stocks could go down that much in one day.
Looking back, it probably was all attributable to program trading. So...it was the computers. Sounds a lot like hedge fund quant methods of today...
g
Merriman's "Fund Advice", which follow timing models gave their signal today:
100% out of Equities.
best wishes
And in mid April and mid Oct of last year, they were 0% and 25% equities respectively:
http://www.fundadvice.com/tools/hotline/complete-us-equity-signal-history.html
Once all the sellers have sold, only buyers will be left. At least thats what the common belief is. So I am holding on to my stocks with some money on the sidelines.
-- Faisal Laljee
Post a Comment