The Time Has Come – Where Does the Market Go from Here?

Everything we have talked about investing in this blog is to make it simple and easy.  We all have our day jobs.  We all have our loved ones to care about.  There’s not much time left for us to time the markets and figure out when to buy and sell.  The majority of us invest in 401K through our work.  Every other week, we put a certain amount of money in the 401K accounts and try to build a decent nest egg for ourselves.  That means we are dollar cost averaging at all times.  However, one thing we can control is what we want to invest our money in.  Do we want to go heavy in stocks in our portfolio such as 80% stocks and 20% bonds?  It appears the time has come for us to think about that.

The chart above is the S&P 500 daily chart as of today’s close.  It’s coming to the point where the S&P 500 may be moving fast toward a technical breakdown – break below the up-trend line.  That means we may have a bear market for a while.  For how long?  We don’t know.  Given that the labor market is healthy, it means the economy is good.  However, the Fed is going to raise the interest rate.  It’s going to be a tough decision to make.
We should watch the market closely and then decide what to do.
Here are a few ideas:
  1. This is just a correction:  Since the labor market is great, a correction isn’t so bad.  A minor set back can prepare for a major rally.  If that’s your view, you can choose to do nothing.  Just business as usual.
  2. Can it be a 20% drop from here?  Possible.  If you are not certain, and the index does break below the up-trend line, you can re-balance your portfolio.  Go heavy in bonds and money markets for a while until the market direction is clear.  I personally have done so since the beginning of 2016.  My portfolio is bond heavy.  I am up almost 6% for the year.  
  3. Uncertain:  You can do a 50/50 split in your portfolio.  50% in stocks and 50% in bonds.

The next few days will be crucial.  If the market stays above the up-trend line, it will be a big relief.  Otherwise, you can decide whether to weather it out or not.   

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