The recent decline in stock prices, culminating in today's plunge of 4-6% in major indexes, presents investors with a challenge. The economic news is worsening, and it is likely that earnings estimates will erode in the weeks to come. Yet, investor sentiment has plummeted. When this has happened before, it has been a good time to buy stocks.
When market sentiment reflects widespread optimism, that is not necessarily a signal that stocks will quickly decline. Prices often as not seem to rise even further, as it is difficult to time market tops. Market bottoms, however, are different. Deep pessimism has been a reliable buy signal. And my favorite market sentiment indicators now signal a buying point for stocks, for a trade at least.
I've advocated holding significant cash levels for some time, and now is the time to start to use it (though I recommend never being fully invested, because of times like the last two weeks). I suggest buying stocks tomorrow morning, unless of course, one's asset allocation to equities is already at or higher than the appropriate strategic level.
Steve Lehman
LehmanInvest.blogspot.com/
S & P 500: 1200
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