Market Timing Update: What to do in this Bear Market

Market Timing Brief for 8-09-2011

1. The markets are bouncing this morning, but be cautious about
jumping in with both feet. Why? Because markets that have
moved this far this fast almost always retest the low they make if not exceed
that low.

Secondly, the Fed is speaking today and if the Fed has nothing great to say,
the markets will likely retest the lows in short order.

Practical Investing/Trading Pointers:

I do not think this is the time to buy, but if you do buy, do so in scale, in steps. If you are buying value, then you will likely want to average in lower. Again, only if you are a value stock buyer and are able to sustain greater losses.

If you did not see this article yesterday, it may be of help in forming your
own approach to this market sell-off:

Market Timing: Selling the Market Late

2. Gold was stronger overnight than it is today, but did recover from
an initial pullback this morning. It is as important to scale into gold
in steps as it is with equities. The value of gold is set relative to everything else, and when everything else goes down gold has to be repriced lower too. The dollar is not collapsing but it is also not rallying with any conviction, so the dollar is not in the way of gold yet. It may be that the dollar goes sideways in a range for a while rather than forming a clear up or down direction.

Dollars are not as attractive from the standpoint of our debt downgrade and also due to the fact that countries like China are moving away from Treasuries. Their buying has declined. Yet, the US dollar is still considered a safe haven in times of great upheaval in the markets, which we’ve had in the past week. So don’t expect the dollar to move back into a definitive downtrend until the
European situation clears up.

Practical Investing/Trading Pointers:

As mentioned yesterday, be prepared for a 5% correction just for starters in gold (GLD; IAU). It is not likely until Europe gets a real handle on their financial
crisis which has not happened.

Silver is not a gold alternative at this point (SLV; silver ETF; GLD; gold ETF). It is lagging gold significantly as it does commonly during economic slowdowns. It does seem to be keeping some “tone,” so it may not collapse right away, but it is not rallying with gold over the past few days.

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invest it.