Skip to main content

It Was Bound to Happen, Though Nothing Has Changed

Note: In the last 30 minutes of trading, the DJIA recovered somewhat, to close at 33,962, or 716 points down. 

A sort of panic has set in. As I write this (about 2:20 PM CDT), the DJIA has plunged 900 points. 

But that's not even 3 percent. So it's not as extreme as it sounds.

In my opinion, markets had gotten ahead of themselves. Prices were too high. But economic indicators have continued showing signs of growth. The Shiller PE ratio is at 37; not an all-time high, but still very high. 

While inflation is a concern, investors had that albatross for several months. 

Investor (retail) sentiment was at an all-time high. According to some theories, when retail investors get this giddy, it's a sign the market may reverse direction. (In fact, most retail investors are still buying at market highs, and selling at market lows, according to most studies).

The energy markets have been beaten down in the last few days. Oil (WTI) futures are down about $10 a barrel in the last five days. Over the weekend, OPEC announced production increases for next year. This added the fall in prices today, another $4 per barrel. Overall, the sector is down some 17% since its peak in mid-June.

Some in the media pinned the decline on Covid fears. Some in the media always try to find a reason, but the truth is simply there is more selling than buying.

But the overall market is only down about 3% from it's all-time highs last week. Some market "experts" are calling for a 10 to 20 percent correction, and while that may be true, it may also not be true. This is the second time that the market has dipped since April. I think it's part of the natural process. 


The chart above shows a daily graph of the DJIA since April. Note that while a 800+ dip in the average seems extreme, on the overall picture it's barely a small blip. 

More noteworthy for long-term investors is the weekly action of the markets. The chart below is the weekly average of the DJIA since the beginning of 2017. Long-term investors should not panic and stay invested. I assume you have a three to five year plan, with an exit plan built in. If so, there is no reason to change path. If you have some extra cash, look for buying opportunities. But if the trend reverses, have an exit plan. 

Labels:

Comments

Post a Comment

Thanks for the comment. Will get back to you as soon as convenient, if necessary.

Popular posts from this blog

California: A Model for the Rest of the Country, Part 2

Part 1 here . On Leaving the Golden State Guest Post by NicklethroweR . Posted on the Burning Platform. The fabled Ventura Highway is all that separates my artist loft from the beach where surfing first came to the United States. Both my balcony and front patio face the freeway at about eye level and I could easily smack a tennis ball right on to the ever busy 101. Access to the beach and boardwalk is very important to a Tourist Town such as mine and I can see one underpass from my balcony and another underpass from the patio. Further up the street are two pedestrian bridges. Both have been recently remodeled so that people can not use it to kill themselves by leaping down into traffic. The traffic, just like the spice, must flow and the elites that live here do not like to be inconvenienced as they dart about between Malibu and Santa Barbara. Another feature of living where I live would have to be the homeless, the insane and the drug addicts that wander this particular...
Post a Comment
Read more

Factfulness: Ignorance about global trends. The world is actually getting better.

This newsletter was powered by  Thinkr , a smart reading app for the busy-but-curious. For full access to hundreds of titles — including audio — go premium and download the app today. From the layman to the elite, there is widespread ignorance about global trends. Author and international health professor, Hans Rosling, calls Factfulness  “his very last battle in [his] lifelong mission to fight devastating global ignorance.” After years of trying to convince the world that all development indicators point to vast improvements on a global scale, Rosling digs deeper to explore why people systematically have a negative view of where humanity is heading. He identifies a number of deeply human tendencies that predispose us to believe the worst. For every instinct that he names, he offers some rules of thumb for replacing this overdramatic worldview with a “factful” one. In 2017, 20,000 people across fourteen countries were given a multiple-choice quiz to assess basic global literac...
Post a Comment
Read more

Habits of Highly Successful Traders, Part 1

(Part 2 is here .) Trading is different than investing. Simply put, trading is short-term, investing long-term.  The goal of investing is to gradually build wealth over an extended period of time through the buying and holding (and selling at a appropriate time) of a portfolio of stocks, ETFs, bonds, and other investment instruments. Trading involves more frequent transactions, such as the buying and selling of stocks, commodities,  currency pairs , or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with  annual returns  of 10 percent to 15 percent, traders might seek a 10 percent return each month.  Trading is hard work. Don't let anyone fool you. But if you're interested in this, it can be rewarding. However, you must have discipline and be able to follow rules. Most traders blow up their accounts. But the good ones follow certain habits. These habits can work well for investors al...
Post a Comment
Read more