I had a caller this morning say he’s 2/3 invested in his 401-K with 1/3 still in the money market. He said he was dollar cost averaging in the rest and was wondering from a technical analysis standpoint, should he keep doing this. I told him he should be dollar cost averaging, but not in the market. He should be dollar cost averaging out of the market. He said “really”? That’s when it dawned on me that there are still people that are trying to buy the dips instead of sell the rallies. There are still too many that are used to bull markets and too passive. We have massive liquidation going on right now. The selling pressure has not stopped. The sideways pattern that was developing the past few weeks has broken and a new round of sellers are entering the game. In other words, there is still plenty of ammunition for lower prices. It looked like it was exhausting, but the selling is re-accelerating.
If you still own too many stocks which basically means 1 or more, then you don’t want to panic and sell at potential lows. On the other hand, you can’t afford to keep losing money. I would be averaging OUT of the market. As much as I didn’t want to, I sold some today. Now, keep in mind, I don’t have a lot in equities right now but any is too much in this environment. We have the Treasury once again changing the rules on us and changing the game. We had Paulson on television giving a speech and not saying anything but more of the same. The creativity we saw a few weeks ago has disappeared and it looks like everyone is on cruise control in Washington just waiting until the next administration takes over. Markets hate uncertainty and that’s what we have right now.
So, the only choice we have is to dollar cost average. OUT though, not in. Why not sell everything today? Because volatility is still high and we will stll get huge rallies. No question about it. And that may be around the corner. But, for now, you can average out of positions or add shorts. Or both. But, just keep in mind, that we will rally and hard. Don’t get whipsawed.
Also, don’t forget about bonds. There are still plenty of good deals out there. Just be careful and do your homework.
