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How was it for you? And what next?

Posted by: Brian Dennehy
A serious question. This week was the first test in a new phase for stock markets. How did you respond? What should you do now? Are you ready for what is to come?
The falls over the last week are long overdue, and certainly should not be a surprise. The media reaction was predictably shallow and mostly a distraction, similarly the investment industry at large.  The mantra is along the lines of “the economy is fine, keep buying the stock market”.  Yet the economy does not drive the stock market, as we explore in a new blog here, Confusing a boom with stock market potential.
Nonetheless these falls were very important, giving you a chance to test and act on your investment plan - even if your plan said you shouldn’t act!
I will talk about this again in next week’s teleconference. For now, do write down how you responded to events this week (did you stick to the plan?), and how you felt e.g. calm, confused, excited, fearful. Be honest with yourself.
For example, if you had a stop-loss of 10% based on the UK stock market index you should not have sold, as this wasn’t breached. But perhaps did you sell. Did you get spooked? Don’t worry if you did - this is important information that you need to allow for in your planning.
As Mike Tyson so eloquently put it: “Everyone has a plan 'till they get punched in the mouth”.
If this week was (only) a dress rehearsal correction, do take advantage of what you learnt and adjust your investment plan accordingly – don’t let Mike Tyson intimidate you!  Get your guard up, and keep it up.
Turning to “what might happen next?”.
I’m building on the analysis built out in the timely report Opportunity Knocks or Apocalypse Postponed?, an exclusive for Gold Members.  (As an aside, this has now been updated to include liquidity issues, how individual funds might react, plus there are some additional chart labels to improve clarity. Do say if here is anything else you would like clarified).
Here is an updated chart of the US stock market which was included in that report.
Gold Members will recall the simple template based on Elliott Wave Theory – three waves up, and 2 waves down.  Wave 3 is typically the most dynamic wave (clearly visible above), but wave 4 is missing.  The parallel lines give a clue to where that wave 4 might end, 20,000 or lower, with substantial support only around 16,000, marked in red, and another 30% below where we are as I write.  Alternatively the dynamic wave 3 might yet move to a new peak (possibly nearer 28,000).
No one knows.  These are just some of the possibilities.
You can’t control the market, nor do you have any magical insights into the next moves in the market – no more than do I, or those very clever people at the investment banks with vast resources at their disposal, or the noisy talking heads on BBC, Sky and Bloomberg.

What you control is your investment plan.  
In that regard do have a look back at Prepare For The Bear and the December teleconference which went into more detail.  Also look at The Overnight Test and this new Stop-Loss blog, based on the explanatory email sent to new Gold Members.
I would love to make all of this material freely available, but I’m afraid too much work is involved to give it away.  But as you can access it for £1 for the first month…
Try out Gold Membership right now.  If it isn't for you you can cancel after 1 month.  We will even give you back the £1!  It is a no-brainer, as they say.
Topic: Fund analysis


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