The Dow Jones Industrial Average plunged to new lows today, dashing the hopes of exchange traded fund (ETF) investors who were feeling optimistic after Wednesday’s positive move.
The Dow sank to its lowest close since April 15, 1997. It’s 53.4% off its record high in October 2007, and is down 42.3% since mid-September.
Today, investors largely reacted to a lack of economic stimulus in China, and also braced for the release of more negative unemployment news, reports The Wall Street Journal. The numbers are expected to show 14 straight months of job losses. Financials also scared investors: Citigroup (C) dropped below $1 for the first time today; and Moody’s said it may downgrade the credit of Wells Fargo (WFC). Traders say the plunge this time isn’t panic – it’s sheer exasperation.
Liz Ann Sanders, chief investment strategist for Charles Schwab, has a few pointers for investors, courtesy of the Tech Ticker on Yahoo! Finance. We’ve expanded on them below, too:
- If you don’t have a plan, get one. It’s not too late to start one, or if you’ve become derailed in the market madness, it isn’t too late to get your old plan back on track. Our plan is to employ a trend-following strategy: when an area is above the 200-day, we’re in; when it’s below the trendline or 8% off the recent high, we sell. No questions, no emotions.
- If you’re going to panic, make it a more controlled panic. If you’re still in the markets and uneasy about it, think about selling one-third of your portfolio. If the market declines another 5%, let another third go. This stems the bleeding, but also keeps one foot in – just in case.
- Don’t try to find the bottom. This goes back to the first point of sticking to the strategy. First of all, it just won’t work, if only because the bottom won’t really be identifiable for months or years after the fact. Second, it takes the focus off looking for trends. Watch to see what’s moving up instead of trying to guess what’s going to stop falling. You might not be first in, but if you get in on an uptrend that sticks, you’ll be in early enough. Be patient.
- Don’t forget about saving after the bull market reappears. This market is a stark reminder that we all need to have cash put away not for just a rainy day, but for an all-out hailstorm. If you save as you should, when the next recession comes, it won’t be quite so frightening if it becomes as deep and prolonged as this one.
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.