Sunday, August 03, 2008

Try to Avoid Large Principal Losses

Top Line: The stock market started August with some weakness but ended the day much better than where it could have. The new week should show some renewed selling most likely right after the Fed's announcement on Tuesday, whatever that might be.

We promised a reader that we would give her some advice about what to do with her portfolio right now. She suggested that our writing style is a little over the top and could we please make it easier to read? Well, we can at least try. We do think the Update needs to be scanned most every day so you can get a feel for the way we describe the market and the way it moves. There is a continuity to this blog that you can become familiar and comfortable with as you contemplate your own thoughts on the market...but we digress.

To our readers, we wish to convey that there is more to go on the downside. The way this all works is that stock owners feel pressure every day about their portfolio because it is going down. But, the media or your conscience has convinced people to hold on through the downturn because you know no one can really time the market. But, people keep watching the value of their mutual funds drop and get more nervous by the day. Finally comes the day when prices go low enough to dry people to sell and that sell order is just to get out. That time is rapidly approaching.

Our advice to our reader last week was to do one of two things, either sell Right now, or don't do anything, well, ok, maybe do something, like turning off the television so as not to hear how bad the stock market is doing over the next few months but do not trade out of you funds near the bottom of the move. That way you aren't tempted to sell into the weakness.

The stock market is about to enter a steep decline so the prudent thing to do is to sell your equity holdings, no matter where these are located in the world. Then you can by-pass the worst of the decline that is coming up. The idea would be to get back in at some point, much lower than here. Try to avoid those losses.

FSI: 79.67 (dipped below 80 again)

VXO: 24.26 -0.41

SDS: 68.20 +0.73
QID: 44.78+0.84

Dow Industrials: 11,326.32 -51.70

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