Not since the market crash of 2008/2009 has the market had such a sharp sell-off as we have witnessed over the past month. In addition, over the past month or so there has been mutual fund outflows not seen since March of 2009 (which happened to be the market bottom). This typically means the retail investor is throwing in the towel. Also, not since World War II has the 10 year treasury yield been below 2% in a desperate flight to safety. I can go on and on, but the point I am trying to make is there are a lot of indicators out there which are historical signs of a bottom being put in. However, it’s important to remember that markets that are being driven by emotion, fear and panic can indeed continue to act irrational and trade lower before reversing.
So far for the month of August the Dow (chart) is down approximately 11%, the S&P 500 (chart) -13%, the Nasdaq (chart) -15% and the small cap index Russell 2000 (chart) is down a breathtaking 18%. Now folks if this isn’t fear and panic running rampant, I don’t know what is. That said, it will certainly take a lot of courage and fortitude to step in front of this freight train, but in reviewing some of the historical market metrics that are currently in play, this may be the time to consider dipping your toes in. However, if you choose to enter this type of market environment, one of the golden rules of trading and investing is to scale in very small and build your selected positions over time. Of course anyone considering investing in these markets or any market for that matter, should always first consult with investment professionals.
Have a great weekend 🙂