Dow Dumps 1000 Points In Last Two Days - What To Do Now

Things looking ugly again on Wall St, with the Dow shedding almost 1,000 points in a 2 day slump. Tomorrow sees the release of important data on payrolls, unemployment and pending home sales. They will define if this is to be yet another Black Friday or a follow through Black Monday. The bounce off 8,000 has been brief, reaching a high of about 9650 in the run up to the presidential elections.

With central banks cutting rates this is starting to smell like panic. The medicine is not working, there is only so much oxygen the patient can take and life-support is at the ready. The most telling thing is that many analysts are saying that forward price/earnings valuations are still too high given the economic climate. There is still a huge black hole of still undisclosed proportions of losses from those very clever financial instruments.

So what can one do? well, the Dow's recent bottom of about 7,900 is only another 10% down. I would not be surprised if we go down to half the Dow's record high, which would take us to 7,000. That's another 20% down. Can you afford another 20% loss in shares from where you are now? This is actually a really lousy time to invest in anything. Bonds are now so low that when rates start to rise again the bond prices will fall, wiping out their yield. In this scenario there are no safe havens.

But for an investor, rather than a trader have a look at the weekly chart of the Dow or S&P 500. There are no buy signals at all. The last sell signal was in September. Even if you don't check your investments every day, it is worth checking them every weekend, just to get a feel for what's going on before the proverbial shit hits the fan. Overlay something really simple like a parabolic SAR and MACD indicators - they are all there on yahoo finance.

Some people spend so much mental energy on analysing sport results but just can't do exactly the same thing with investments. Beats me!