Markets Go Back to 1997 - What Investors Can Do Now | ETF Trends

Exchange traded funds (ETFs) and the overall markets had another gloomy day today as the major indexes traveled back in time to the 1990s.

Waning confidence is plaguing Wall Street as the S&P 500 fell to an April 1997 low and the Dow Jones Industrial Average went to an October 1997 low, reports Sara Lepro for the Associated Press.

What’s on everyone’s minds?

  • Financials. Despite word of a revamped rescue program, financials still got pummeled. Even assurances that the government does not want nationalization, investors still seem worried that it could happen.
  • General Fear. The government isn’t doing much to alleviate the growing tension on Wall Street. Investors are very pessimistic, and it seems to be getting worse.
  • Technology. Tech stocks were slammed today after The Wall Street Journal reported a planned reorganization at Yahoo.
  • Volatility. The see-saw motions of the market are keeping many investors sitting on the sidelines and waiting it out. The VIX today gained more than 6%.

Investors have been wondering what to do now for months. They continue to be stunned by how deep and prolonged this downturn has been, with little great news to be had.

What to do? We’ve covered this issue before, but it bears repeating.

This is a simple plan for coping that’s easy to follow, will help stop the bleeding and helps to remove emotions from the process. If you follow this, you’re not bailing entirely on your portfolio, you’re just taking steps to protect yourself in case the market continues south:

  • Sell one-third of your invested equity positions now.
  • If the remaining two-thirds decline 5%, sell another third.

We might like to think we’re at or near a bottom, but the truth is, nobody knows.

If you sell a portion of your portfolio now, however, you need to be committed to get that cash back in when the trends reverse themselves. To that end, our entry strategy is as follows:

  • When a fund crosses above its 50-day moving average, put 25% of the value of your portfolio.
  • When the fund goes up 5%, put another 25% in.

By the time this happens, the 200-day moving average should be well within sight, and things should begin operating in line with our normal buy parameters once again.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.