I believe we are currently in a “market mechanics” type of environment.
Does this mean the market is due for a major crash?
Absolutely not. The market could as easily rally 5% from here as it could drop another 5%. I have no insights into what it will do, but I can tell you what I think it has the potential to do in the near-term.
It has the potential to make a move greater than you’ve ever seen before.
This type of move won’t respect your EPS estimates, valuation models, or even my beloved technical analysis – and you don’t want to be caught on the wrong side of it.
So, what should you do?
Well, you don’t have to do anything. Sometimes watching from the sidelines is the best play.
But, if you have some dry powder, one thing you could do is get out your shopping list of stocks you’d like to own and put in some stupid bids way below the market.
What shouldn’t you do?
Don’t buy leveraged products.
Don’t go on margin.
Don’t buy at a price you’re not comfortable with.
Don’t buy a position you’re not comfortable holding for a while – and through more volatility.
And most important, don’t use up all your cash, in case you have to do the same thing again.