What to Do Now?

10/22/2008 9:48 am EST

Focus: STRATEGIES

Tom Busby

Founder and CEO, DTI

Many believe that the bottom is in and everyone is trying to claim that they were the first to call it. Others believe that things can and likely will grow worse over the course of the next year. And there are as many opinions in between as there are people on the Earth. Trying to decide who to listen to and who to change the channel on is like trying to make sense of why a grocery store sells ten hot dogs and eight hot dog buns. Just as in my past articles, I will attempt to make the seemingly complicated more simple.

What should you look for? Is it when this line crosses that or when the VIX is below there? How can we make money off of this downturn? How long will it take to go up? Should I get out now? There are, once again, as many questions as there are people, probably more. As I have stated before, I don’t have all of the answers, but I do have common sense. Think back to the Bear Stearns day of bankruptcy. The market went down and everyone knows that. What most people don’t remember is that there were people out there saying that was the time to get long. They were saying that was the washout, and trying to convince people to buy back in. Everyone knows what happened a few months later.

I say all of that to say the following: If that was not the time to buy back in, what makes this time any different? You then may be asking, how low can this thing really go? Well, it can theoretically go to zero. That is not the question though. The question is how long will the market stay down or trade sideways before it decides to head for higher ground? It is during that time that people will be washed out, get scared, and lose money all over again. Instead, be patient, let the credit crisis reveal a few more victims, put what cash you have in a safe place, and wait until there is a positive catalyst. The fact is, you may decide that the best trade is not in actual traditional stocks, and you may want to be in commodities or bonds once this cleansing has shown its hand. Wait until you have a clear picture and then latch on to what you believe in.

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By Tom Busby of DTITrader.com

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