Thursday, 24 February 2011
How to interpret these wild swings in the stock market.
Should you stay bullish when what’s truly causing this turmoil is Libya mad man Moammar Kadafi, who’s sitting on a huge amount of oil ready to take on the rest of the world.
That dos not inspires much of a bullish confidence, especially when a big increase in oil price can hinder the fragile nature of the US recovery. If the oil price goes above 150 dollars a barrel, the US economy just might plunge back into recession, and the stock market might get another vicious correction.
The bottom line is, take Kadafi out of the equation, and the market comes back soaring again. The problem is, hope should never be part of the equation, and while Libya keeps on protesting, you should expect the stock market to fall even deeper.
Remember last time the price of crude oil peaked at 148 dollars a barrel, the tech sector got hammered, the S&P 500, industrial, and consumer discretionary stock got crushed.
The biggest winner was Gold.
So the best survival strategy for times like these, is to buy Gold, then sit back and watch the good stock’s tumble, if they decrease more than12 to 15%, you should buy in increments as the price of the stock seem to be hitting rock bottom. Only buy stock that have a solid balance sheet, and that reported great earnings.
It’s entirely possible that the stock market bounces back tomorrow, if a peace regime comes into order, and Libya starts pumping oil again. However, betting on that scenario is very risky business.
Be wise, don’t go wild and buy stock just because they seem cheap, last time that happened in July of 2008, a lot of people got burned, learn from history, don’t look at this downfall as an opportunity to buy, wait until the Libya crisis resolves itself.