You never sell into a panic. You always sell strength and buy weakness when it comes to the stock market.
In my book “The Great Super Cycle,” I talk about long-term market cycles. I state that the market sees 10-year to 20-year cycles where it is in bull markets and 10-to-20 year cycles where the market does little to nothing.
These are called secular moves. Within the secular bear markets cycles, there is a lot of volatility. The market doesn’t just go sideways in a straight line. For example, the Dow Jones Industrial Average went nowhere from 1966 to 1982 but there were many rallies and declines of 30 percent to 40 percent during that period.
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The same goes for this cycle. In the past 10 years, the Dow has done nothing.
However, there have been huge moves. There was a near 40 percent decline in the 2000 to 2002 bear market. Don’t forget the huge rally from 2002 to 2007 and then a crash of 53 percent from 2007 to 2009, followed by near doubling in prices into 2011.
The crash we saw in 2007-2009 was very common for the middle of a secular bear market: this being a big bust and financial crisis.
Similar bear markets happened in 1907 and 1974 in the midst of secular bear markets. In each case, these bear markets were followed by two-year rallies which saw markets nearly double from their lows much like the 2009-2011 rally.
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I now think that the market has hit a crucial point.
However, in the short term, the market is extremely oversold. As I write on Aug. 4, 2011, the market is gapping down and the Dow has fallen nearly 400 points at its low. The VIX, a measure of volatility and fear, is spiking like it often does at short-term lows. It is extremely oversold and due for a bounce. So I think in the coming weeks we could see a very strong rally. However, it is a rally that should be sold.
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