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"StockBreakthroughs Newsletter"
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February 28, 2007.
In this issue...
Market Crash February 27, 2007
When Stock Market watchers read their history books years from now, February 27, 2007 will be remembered as one of the most memorable days in the history of the Market.
The Dow Jones Industrial Average lost a remarkable 416.02 points yesterday closing at 12,216.24 points. This represents just over 3,29% of the total index average and is the worst drop since 9/11. The NASDAQ Composite Index plummeted 96.66 points or 3.86% closing at 2,407.86. The Standard and Poor’s 500 Index also walked off the cliff yesterday, freefalling 50.33 points or 3.47% closing at 1,399.04. These drops are astounding in their magnitude; and from a historical perspective, as rare as left handed identical contortionist twins.
To clear the air right away we had better go ahead and ask the questions now.
IS IT TIME TO PANIC?
No.
IS THIS THE BEGINNING OF THE END?
Not likely.
SHOULD I GET COMPLETELY OUT OF THE STOCK MARKET WHILE I STILL CAN?
I wouldn’t.
You see, we are not strangers to staggering market gyrations. We’ve here to watch the huge market gains of the 1990’s. We saw the “Tech Bubble” inflate as a hot air balloon would, to lift with it even the most uncomprehending of passengers. We saw it explode as well.
We witnessed the stock market aftermath of 9/11, the start of the latest Bull Market beginning in 2003, and so on and so on. Today we have witnessed another momentous event. But, we are not
shaking off our foundations. We are not disillusioned or distraught.
This is one of those days, as have passed before, when I hope with renewed intensity that you have really listed to me during the time we’ve been together. If you are positioned as I teach, a day such as yesterday provides as much opportunity as it may invoke distress. Consider the following key points of my stock market philosophy and practice. I’m sure you will recognize a few of these:
1. I believe that 80-90% of one's liquid assets should be working in long term investments. Choose
proven funds then dollar-cost average your new investment money.
2. No more than 10-20% of ones stock market resources should be committed to short-term trading.
3. Never commit more that 50% of your short-term trading account to active trades at one time.
4. Never open a single trade with more than 10% of your account’s value (for accounts over 25K).
5. Always know your exit before entering.
Now, today I received a notice from my broker that one of my positions had been closed. It happened
because the stop order I made weeks ago had been triggered. I placed myself in a situation wherein
“bad luck” would not get the best of my trading account. I sincerely hope that you did not hang yourself
out to dry from a trading perspective. Today the hot East Wind dried a lot of laundry.
Today I will be looking to add cash to existing long-term positions. That is, I am going to be looking to buy more shares of mutual funds or stocks. Should the Market continue the dive, I may wait until Thursday or Friday to add to positions. This is what I did, and suggested just after 9/11/01.
Unusual Market movements provide unusual opportunities. The crash yesterday has thus far been blamed on the Chinese market drop the day before. At the same time new housing starts in the U.S. were the highest in 2 years. More discussion will take place today and there after. Many companies saw their share price hammered without mercy yesterday. In many, many instances yesterday’s individual issue selling was completely undeserved. The Market will have to compensate for its over-reaction. Whether in the next days or weeks or months, it does not matter. The compensation and rebalancing will take place. If it does not, then it might be time to panic.
Today would be a good day to go through your watch list and scope out some potential slams (rebounders) or others.
Trading (or investing) is not for Rabbits. If you were caught with lettuce in your teeth yesterday, it is not too late. You can give up the ways of the long-eared rodent in favor of measured consistency. Learn the rules and follow the rules!!!
Yours in Successful Trading
Ricky Schmidt
Information, charts or examples contained in this lesson are for illustrational and educational purposes only. They should not be considered as advice or a recommendation to buy or sell any security or financial instrument. We do not and cannot offer investment advice. For further information please read our disclaimer at: