Stock Market Musings - What To Do?

With the volatility in the stock market, this is the only topic that merits reflection and musing:-) In the last month, the Dow has given back all its gains back to May 10, 2007. On Friday, August 3, 2007 the Dow fell 281.18 to 13,182.15. The Dow lost more than 100 points in the final 15 minutes. Despite the day's loss, the index was off only 0.63 percent for the week.

Here's what I'm doing:

Waiting for a clear bottom and reversal. I am not dollar cost averaging, buying on the dip or looking for oversold stocks. At this point, I do not believe this is going to be a sharp spike downward, with a fast return upward. The sub-prime issues and the VIX indicate the decline may be a long drawn out one. In addition, the new highs and new lows values have been bearish even on days when the Dow gained.

For reference, buying on the dips worked well in the late 90s. I was burned in 2002, when the market didn't rebound and continued to decline for the year. Based on that experience, I decided to pass on the buy on the dip strategy and wait for a clear turnaround.

At this point, I will be convinced a reversal is completed when new highs significantly exceed new lows and the Dow has retraced at least 75% towards the previous high. I do not plan to buy any additional stocks until this happens.

Holding on to existing positions. I will continue to hold existing positions in the managed accounts, the modified Unemotional Investor Growth system account and my long term hold account. My managed accounts are handled by my financial advisor, who recommends staying invested. Currently, the managed accounts have given back all of the gains for 2007. The Unemotional Investor account has given back most of the gains but is still up 2.8%. I think that TEX, POT, SJR and AVT are good stocks and will continue to hold them until the system indicates to sell. My long term hold account consists of three stocks (GOOG, AMZN, and GE) that I believe have excellent business models that will succeed in the future. I will continue to hold these stocks.

Potentially, selling into a rally. I expect that there will be a rally in the near term, even if the market continues to decline. If the new lows continue to be significantly greater than new highs during the rally, I will sell the positions in the Unemotional Investor account. This portfolio tends to be more volatile and will benefit from short term rallies or decline more if the market spikes downward. I will continue to hold my "long term" account stocks.

Refining factors for determining an upcoming downturn. If this time is truly a major market correction, I will be disappointed that I didn't have a better indication that it was coming. I will continue to refined the analyses used to determine if the market will make a correction.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC